Ok, so a home with a kitchen like the one pictured probably isn’t going to appraise, and the buyers loan is going to be denied. Most people will find this rather reasonable. But, as many people have been finding out lately, it can be very difficult to get through the financing part of purchasing or selling a home. Lenders and really the investors that typically purchase the loans from the lenders, have become very finicky. They want to give out loans on top notch properties to top notch borrowers.
What is the importance of the appraisal you might ask? The appraisal is what tells the lender what a homes value is. Therefore appraisers have the ability to end a deal, and here is how.
When a buyer gets into contract for, let’s say, $500,000 and are prepared to pay a 20% down payment the property must appraise for $500,000 (Down payment $100,000 with a loan amount of $400,000). If the appraiser values the property at $480,000, for instance, the lender will only lend 80% of this new appraised amount ($384,000). This means unless the buyer and seller are able to negotiate a new price the buyer has the choice of canceling the contract or coming up with the extra $16,000 ($500,000-$384,000 = $116,000 down payment). For most buyers coming up with an extra $16,000 two weeks into an escrow can be daunting.
Any way, there are things a seller can do to help the buyer’s appraiser come up with the right value, and no, telling the appraiser how much the appraisal must be won’t work. Here is a list of appraisal tips that can make life easier:
While appraiser can see past clutter, they must disclose deficiencies which may affect the health and safety of the occupants or the continued marketability of the property. Often times, if the lender believes those deficiencies are health and safety, the lender will require you to fix the items, and pay for the appraiser to return to the property to re-inspect. To avoid delays and extra fees, make sure your home meets basic health and safety requirements. Here is a list of common repairs required for FHA financing, although more and more conventional lenders are requiring such repairs as well:
- If the home was built prior to 1978, chipping, peeling paint must be scraped and painted. This includes interior, exterior, garages, fences, sheds, etc.
- Any useful components or mechanical systems (appliances, floor covering, etc.) of the home, especially the roof, should have 2 years of useful life remaining. A roof should have no more than 3 layers of shingles.
- Broken windows and doors should be replaced.
- Mold or mildew can be a serious health issue and should be removed.
- The cause of negative drainage must be cured (i.e., improve drainage away from the house, gutters, French drains, etc.).
- Health and safety hazards (i.e., electric garage door opener won’t reverse with resistance or burglar bars don’t have safely latches). GFIC outlets are not an FHA requirement.
- Abandoned inoperable wells must be capped and sealed by a licensed well sealing contractor. Any large, unfilled holes must be filled (i.e., swimming pool must have water or dirt in it).
- Safety handrails should be installed – or repaired if unstable – in open stairwells of three or more stairs.
- Infestation of any kind should be exterminated (i.e., insects, mice, bats, etc.). Although termite inspections are no longer required on FHA appraisals, inspections are required when there is evidence of decay, pest infestation, or suspicious damage or when it is customary to the area or required by state law.
- Damaged or inoperable plumbing, electric and heating systems should be repaired.
- Structural or foundation problems must be repaired.
- Flammable storage tanks must be removed and filler cap sealed from the inside (i.e., buried oil tanks).
- If there is a crawlspace, it will e the homeowner’s responsibility to make this area accessible so that it can be thoroughly inspected. Vapor barriers are no longer required in crawl spaces.
- Water heaters must be appropriately strapped and have a non-adjustable temperature and pressure relief valve.
- Carbon Monoxide detectors are required in some states and must be placed to local code requirements.