When sellers consider the home appraisal, they’re typically sweating over the value of the home in the sales process. But value is far from the only issue that appraisals could surface for a homeowner. Although home appraisals primarily function as a way to determine the market value of a property, they can also include recommendations for repairs that a seller will have to fix in order for the buyer’s financing to go through.
Depending on whether the buyer is taking out a conventional or a government loan for their mortgage, the required appraisal repairs will vary. After scouring appraisal forms, talking to real estate agents, and quizzing experienced home appraisers, HomeLight brings you the most common repairs required for conventional and governmental loans.
Common repairs for conventional loans
The state-licensed appraiser is there to make sure the buyer and lender are paying an appropriate amount of money for the property. That means they’re looking at the size of the property as well as its overall condition. Your property doesn’t have to be pristine, but things must be in working order.
The appraisal process for a conventional loan is less restrictive than that of a governmental loan, explains Janice Rosenberg, a top-selling Raleigh, North Carolina-based real estate agent with more than 1,000 real estate transactions under her belt.
”With a conventional loan, the appraiser has the least amount of work to do—but don’t get me wrong, it’s still a lot of work.”
An appraisal for a conventional loan is also less thorough than an inspection. Chances are good that if you’ve prepared properly for a home inspection, you’ll evade many of these common repairs. The issues that might lead your appraiser to ask for repairs before the loan is secured all revolve around the health and safety for the future owner: “They’re not supposed to take decoration or design into consideration,” says Rosenberg.
- Paint condition
If an appraiser has any feedback on your home’s interior or exterior paint, it’s about the paint’s condition. This goes double if your home was built before 1978 when people still used lead-based paint. If there’s paint peeling around the structure, and there’s also a chance it contains lead, you’ll likely be required to address it.
An appraiser’s top priority is the health and safety of future property tenants, so if handrails on steps and stairs aren’t properly secured, or are missing entirely, you could be required to fix them.
- Age of roof
“They say the roof has to be in good condition,” says veteran appraiser Charles Argianas, president and founder of Argianas Associates. “I don’t know any appraisers that open the window and climb out to the roof, but they’ll assume that a roof has a 20-year life.” Generally, appraisers want at least 3 years left on the life of a roof, or they’ll flag it in the appraisal, and you may need to replace it. (Ouch!)
Appraisers will flag any major issues regarding plumbing, electrical, and HVAC (heating, ventilation, and air conditioning). All systems should be in working condition, or you’ll likely need to repair them before a bank will secure the buyer’s loan.
There are additional issues that an appraiser on a conventional loan might highlight, but they’re almost all common sense. If something on the property would lead to unsafe living conditions, then an appraiser will point it out.
Unless you’re selling your home as-is, you’ve probably fixed some of these issues in anticipation of a home inspection and house showings. For a seller who’s lived on a property for years, you might be used to certain “quirks” of the house and overlook their potential for danger. Rosenberg recommends working with your real estate agent to go through the property, flagging any problems that might be an issue for the appraiser. Fixing them ahead of time means you don’t have to rush through the repairs during the closing process.
Repairs for government loans
If your potential buyer is applying for a government loan, the appraisal tends to be more strict. Government loans include FHA, VA, and USDA mortgage programs. Appraisals are required for all home purchases using governmental loans, and the property must meet the U.S. Department of Housing and Urban Development’s (HUD) minimum property guidelines.
Here’s where it gets serious: “Guidelines” is putting it nicely. “It’s not a guideline,” Argianas explains. “It’s a law, it’s a mandate.”
Appraising can be more of an art than a science, and an appraiser might cut you slack when it comes to conventional loans. But when dealing with federal regulations, they’ll need to follow the exact letter of the law.
Appraisers have different guidelines for FHA, VA, and USDA, but they only vary slightly.
HUD’s 21-page handbook on appraisal guidelines for FHA loans can give you a comprehensive idea of the process, but Argianas, who had his start specializing in governmental loan appraisals for residential properties, gave HomeLight insight into which issues come up most frequently:
- Upgraded outlets
If your home is on the older side, you might still have some pesky two-prong outlets. Luckily, it doesn’t take much time or energy to replace a two-prong outlet with a three-pronged one. This Old House, with 40 years in the home improvement business, has a six-step guide to the upgrade.
- Rotting exteriors
Any wood rot, on windows, doors, or exterior features, will be flagged for repairs.
- Pull-chain light switches
If your crawlspace, attic, or closet has a single lightbulb turned on by a pull-chain, you’ll have to replace it.
Steps require a secured handrail, as do deck porches.
- Exposed wiring and fuse boxes
Outdated wiring can be an issue. If you have an older fuse box, or no fusebox at all, you might be required to install one, or update it.
If the foundation of your home has damage that the appraiser deems “unacceptable,” then your buyer’s loan might fall through. (Unacceptable typically means extreme moisture or water damage.)
If a structure on your property encroaches on a neighboring lot, it’s no longer eligible for FHA mortgage insurance. That means a government loan is unlikely unless you can get the neighboring property to agree to allow the encroachment.
- Unpermitted work
If you completed home renovation work without a permit, there’s no way to ensure its safety, another red flag for appraisers. You might have to retroactively obtain a permit for the work completed if you want to sell to a buyer with a governmental loan.
If you have multiple living units on your property, the utilities must each be separated. As with a conventional loan, they must be in working order.
- Stovetop ventilation
“I can’t tell you how many houses I’ve appraised where they had a hood over the stove, but the fan didn’t go anywhere,” Argianas says. Your kitchen must properly ventilate, with working fans.
- Bedroom windows
All rooms categorized as bedrooms on your property must have a window with outside access in the event of a fire or other emergency.
Appraisals for government loans are more involved than the conventional loan. While an appraiser might cut you slack in some instances, they’ll more closely follow the formal guidelines and HUD’s minimum housing requirements.
The guidelines can seem exhaustive and complicated, so when in doubt, remember it all comes down to health and safety. If there’s something in your home, from a loose floorboard to an unsecured handrail, that could jeopardize the safety of an occupant, it’s going to be flagged.
The appraiser flagged an issue—now what?
Whether your buyer applies for a conventional or governmental loan, there’s a chance an issue in your home might be flagged. However, don’t fret—flags should be perceived as warnings, but they’re not necessarily deal breakers. The solution could be as simple as upgrading outlets. On the other hand, it could be as involved as removing lead paint from your home.
Who pays for the repairs will depend on your purchase agreement with the potential buyer. Most purchase agreements include a clause regarding who will pay for repairs up to a certain value. If the appraisal comes back with more repairs than the agreement accounts for, then you’ll have to negotiate with your buyer on who will foot the bill. Can’t reach a consensus? This is one of the instances where a buyer can walk away from the deal.
In the case of government loans, not all repairs must be made before closing, but they must be completed within a year of closing.
If an appraiser comes back with multiple, large-scale issues flagged, there’s a chance both conventional and governmental mortgages will be denied. The property might not be safe enough for a bank to back it. In that case, you might consider selling your home as-is for cash.
The appraisal means you’re in the home stretch of selling your home, but it doesn’t mean it’s a sure thing. Depending on the loan your buyer is applying for, you could be asked to make repairs and upgrades to ensure the property is safe. If you’re working with an agent upfront to get a home as “sale ready” as possible, you’ve likely already seen and addressed many of these issues. While special loan programs can be more strict, the appraisers are simply looking out for the well-being of the future tenant; if you keep that in mind, you should be able to reach a solution that results in your end goal: selling your home.
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