When dealing with older homes and/or homes needing rehab, there are many issues to consider. One issue that is becoming more prevalent is appraisal requirements.
For those of you who have dealt with FHA loans over the last few years, you may be aware that appraisers on these transactions are being asked to act as a hybrid between appraiser and home inspector. What you may not know - and what everyone needs to be aware of - is that this inspection aspect of appraisals is now becoming a requirement for many lenders on many types of loans.
Traditional appraisers were asked to value properties, period! Defects in the condition of the property were taken into consideration merely to the extent that they affected value. Today however, more and more lenders are requiring appraisers to make note of hazardous and/or dangerous conditions for various loan products. Two prime examples of hazardous conditions are flaking paint in older homes (due to the possibility of lead) and broken windows. The reason for this requirement is somewhat technical and has to do with the reselling of the loans to investors, but the practical effect is that these homes won't qualify for many loans unless the issues are rectified.
What does this mean for you?
If you are a seller and want the broadest possible market, fix the problems prior to marketing the home. Remember, these appraisers aren't contractors or inspectors, so they are only noting obvious defects. However, if you can see it, so can they.
For buyers, question your mortgage lender or broker as to what they know about the particular loan product you are using, so that you don't waste a great deal of time vetting properties that cannot be financed through that product.
Unfortunately, due to ever-changing regulations, real estate transactions continue to become more complex. Going forward, it will be even more important that you select the most qualified real estate professionals to help you through the process.
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