How To Handle Page One With A Subject To Appraisal

12OK! You get to the bottom of Page 1 of the 1004 from and there’s that statement: “Are there any physical deficiencies or adverse conditions that affect the livability, soundness, or structural integrity of the property?” Since you are doing the appraisal for FHA, you know you must indicate there is peeling paint. Sometimes peeling paint means old paint. Sometimes old paint means lead-based paint, which must be properly disposed of since it could contaminate the environment if the disposal were not conducted per EPA guidelines.

So, which box do you mark? Do you mark yes there is a problem, and then make the report subject to the repairs of said problem? Or do you mark that there is not a problem and make the appraisal subject to the hypothetical condition that whatever problems there may be have been remediated properly and, in a workman-like manner?

I submit to you it’s perfectly acceptable to indicate that there are no problems because you’ve made the appraisal subject to the hypothetical condition that whatever problems there may be have been timely, properly, and correctly repaired in a workman-like manner. This step makes it clear that you understand there is a problem to be overcome. It also puts that responsibility back on the seller, the buyer, and/or the eventual lender, which is where the problem should be. It is not your problem.  Your problem was to conclude a credible value opinion, which is exactly what you did.

You are not a painting contractor; therefore it does not fall to you to determine the cost of a new paint job. You are not an EPA-certified environmental contractor; therefore, it is not your problem to determine the cost and scope of work necessary to remediate the problem occasioned by the presence of the lead-based paint. Your job is to disclose there is an issue. Your job is not to fix that issue.

Now that you understand what to do when this situation faces you, go out there and create some value! 

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode: 

5 Comments on “How To Handle Page One With A Subject To Appraisal”

  1. I would have to respectfully disagree: if doing the appraisal for FHA (USDA/PHFA or similar entity), we must check the YES box, detail the problems, provide a cost to cure and make the appraisal subject to repair.

    This is outlined in the HUD Handbook 4000.1 (Page 508) II.D.3.o. “Repair Requirements: When examination of New or Existing Construction reveals non-compliance with MPR and MPS, the Appraiser must report the repairs necessary to make the Property comply, provide an estimated cost to cure, provide descriptive photographs, and condition the appraisal for the required repairs.” It later states (Page 509 II.D.3.o.iii. “Defective Conditions Requiring Repair: The nature and degree of any noted deficiency will determine whether the Appraiser must address the deficiency in the narrative comments area of the report under “condition of the property” or “physical deficiencies” affecting livability or structural soundness.” That refers directly to page 1 of the URAR. This point if further clarified in the FHA Single Family Housing
    Appraisal Report and Data Delivery Guide, page 25 i. Narrative Comments Section.

  2. The Coach is correct. In my opinion, what you are describing would be misleading on a “Subject To” report in which you complete the report under the H.C. that the repairs have been completed. In the physical deficiencies/adverse conditions section, I usually use something like, “The subject was appraised as if none were noted. SEE COMMENTS REGARDING MPR ISSUES.” I will itemize and explain all H.C.s & estimated C2Cs in the addendum.

  3. Thanks Dustin!

    I think this same topic was mentioned on one of your Podcasts a few years back and this made total sense! I ended up bringing this to my mentor (who always checked “yes”) and we had a good conversation where he agreed the box should be checked “no” since the hypothetical covers all bases for the issue.

  4. I have to agree with Dustin. Also, part of the scope of work requirement requires you to adhere to the reporting requirements of the report form when using a Fannie Mae form. With the exception of Certification #23, and the current allowed alterations for COVID, Fannie does not permit the modification of the intended use or reporting requirements of the report form. Since the report is being completed “subject to” the repairs being completed the report would have to be made based on the hypothetical condition that the repair items were completed as of the effective date of the report. As such, you would not check the box indicating that there are deficiencies on page one. However, at the same time, to not be misleading, you would explain the situation in the addendum of the report.

  5. Just wondering about how pealing paint effects the livability, soundness, or structural integrity of a property. I don’t think that question has anything to do with pealing paint. It seems to refer more to if the house is falling down (a home in a C6 condition). In the UAD Definitions page it describes a C6 house also as ” a property with conditions sever enough to affect the safety, soundness, or structural integrity of the improvements.” One may argue that pealing paint is a safety issue since it refers to health safety. But if that the case (and you check yes to this question) then you would also have to refer to the property with pealing paint as having a C6 condition which is kind of extreme. I would leave this question as “no” but according to FHA still make the report “Subject to repairs”.

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