Blessed Assurance

In the appraisal of residential real estate, there are several basis points available to the appraiser regarding the completion of the report. The most common basis is “As Is,” which is utilized when there are no repairs, modifications or required inspections to the subject property. 

Other alternate basis points include:

  • Subject to Completion Per Plans and Specs which is utilized for proposed construction or when the subject is currently under construction
  • Subject to Repairs or Alterations which is utilized when there are deficiencies that require correction, such as items that prevent a property from meeting FHA’s minimum property requirements
  • Subject to Required Inspection which is utilized when there are conditions or issues that are beyond the expertise of the appraiser and as such it must be deferred to an independent, qualified professional

All of the alternate bases described require the appraisal report to be completed on hypothetical conditions that the improvements under construction, repairs or inspections (and requirements thereof) have been completed; and the value opinion rendered must be consistent with the property condition(s) as described in consideration of these hypothetical conditions.

There is often a great deal of confusion and inappropriate underwriting requests associated with the “Subject to Required Inspection” basis. Appraisers are often asked to review inspection reports, bids for repair/modification or other information that has been provided by an independent, qualified professional because the appraiser has deferred to this professional based on their expertise.

In some cases, appraisers are asked to include statements within the report confirming that once the recommendations of the qualified professional are met, the property will meet HUD’s minimum property requirements. An example of this would include a situation in which the appraiser noticed during inspection what appeared to be stress cracks along the foundation walls, similar cracks along the interior walls, misaligned doors that do not open or close properly, and unlevel floors. In this case, the appraiser would complete the report “Subject to Required Inspection” by a structural engineer or other qualified foundation professional.

Asking the appraiser to submit a statement of this nature can be problematic. The appraiser does not possess the professional expertise to determine or diagnose issues related to the structural integrity of the property. As such, he also cannot make any guarantees or assurances within the report regarding these professional recommendations. Doing so would be inconsistent with the deferment to the qualified professional and could also open the appraiser up for a great deal of liability related to the recommendations or the work completed.

When an appraiser defers to a qualified professional, he has essentially removed himself from the equation with regard to the issue at hand. Therefore, it is the responsibility of the underwriter to determine whether the recommendations of the qualified professional were fulfilled and if the subject property is able to meet HUD’s minimum property requirements. The appraiser may subsequently be contracted to revisit the subject property for verification that the work associated with the recommendations has been completed—provided, of course, that the appraiser feels qualified to make such a verification (i.e., that a roof has been replaced based upon the recommendation of a licensed roofer). Otherwise, the qualified professional may need to be contracted to revisit the property and make such verifications for the underwriter’s satisfaction.

About the Author
John Golden is the National Quality Control Manager for Landmark Network, Inc.  He is a former certified residential and FHA appraiser and is currently on HUD's 203k consultant roster.

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