Appraisal-Required Repairs

Why this matters

A home inspection finding is something a buyer can ask for. An appraisal condition is something the loan will not fund without. When an appraiser marks a house "subject to" repairs, the closing date does not move just because nobody has called a trade yet, and the call that comes in is usually from a seller or an agent who has a week and does not know exactly what the appraiser wants. A shop that can read the condition, tell which part is a real requirement and which is a guess, and say what the re-inspection will look for is the shop that gets the call next time. A shop that fixes what it thinks the appraiser meant gets a second re-inspection fee and an angry agent.

What an appraisal condition is

An appraiser on a purchase loan is hired, through the lender, to give an opinion of value. Most loans also ask the appraiser to say whether the house meets the loan program's basic standards for a habitable, safe, sound property. If it does not, the appraiser writes the value "subject to" listed repairs, and the lender will not close until those repairs are done and confirmed.

The standards depend on the loan:

• FHA-insured loans carry HUD's Minimum Property Requirements, set out in HUD Handbook 4000.1. The intent is that the property be safe, structurally sound and secure, and protect the health of its occupants. The appraiser is required to call out conditions that fail that test.
• VA-guaranteed loans carry VA's own Minimum Property Requirements, in the VA Lender's Handbook. The categories are close to FHA's.
• Conventional loans sold to the secondary-market investors do not have a published checklist of the same kind, but the investors' guides require repairs where a condition affects safety, soundness or structural integrity, and the appraiser writes "subject to" in the same way.

So a government-backed loan does not invent new rules, but it gives the appraiser a written standard to enforce and less room to let a borderline item go. That is why FHA and VA deals produce the most appraisal-required work, and why older houses bought with those loans produce more of it than anything else.

What triggers a condition, and what does not

Appraisers are not inspectors. They walk the house once, they do not open equipment, and they write what a habitable-house standard requires them to write. The conditions that come up most, by the trade they land on:

What normally does not trigger a condition: worn carpet, dated fixtures, a dripping faucet, hairline drywall cracks, an old but working furnace. The standard is habitable and sound, not new. When an appraiser does condition something cosmetic, it is usually because they read it as a sign of something else, such as a stain that suggests a leak.

Reading the condition as written

The appraisal is the lender's document, and you will usually see the condition copied into an email from the agent or the loan officer. Read the actual words. A typical excerpt:

SUBJECT TO the following repairs:
1. Peeling paint at exterior window trim, all
   elevations, and at porch ceiling. Year built
   1958. Repair all defective paint surfaces.
2. Basement stair (6 risers) has no handrail.
   Install handrail.
3. Furnace did not operate at time of inspection.
   Gas service off. Utilities to be on and all
   mechanical systems operational.
Completion report (Form 1004D) required.

Three things to pull out of every condition:

• What it names, exactly. "All elevations" means every side of the house, not the front the appraiser photographed. "Repair all defective paint surfaces" includes surfaces nobody pointed at.
• What it does not say. Condition 3 says the furnace did not operate and the gas was off. It does not say the furnace is broken. It may be fine.
• How completion is confirmed. Here, the appraiser or another appraiser comes back and completes a Form 1004D, the appraisal update and completion report used across conventional and government lending. VA uses its own compliance-inspection route on some deals. Either way, the re-inspection compares what is there against what was written, so what was written is your scope.

The worked case: three conditions on a 1958 house

The excerpt above is from an FHA purchase. The seller's agent calls a general repair shop on a Monday with closing set for 12 days out. Here is how each condition resolves and why.

Condition 1, the paint. The house was built before 1978, so peeling paint is presumed to be lead-based paint unless tested otherwise, and repairing it is renovation work that disturbs lead paint. The EPA's Renovation, Repair and Painting rule at 40 CFR Part 745, Subpart E applies to compensated work in pre-1978 housing and requires a certified firm with a certified renovator, unless the job falls under its minor-repair exception: 6 square feet or less per room on the interior, or 20 square feet or less on the exterior, with window replacement and certain prohibited practices excluded whatever the area. Your state may run its own authorized lead program with stricter terms, so check it.

Measure before you decide. The shop counts eight windows with peeling trim at about 2 square feet each, 8 times 2 making 16 square feet, plus a porch ceiling with about 12 square feet of peeling paint. Exterior total: 16 plus 12, which is 28 square feet. That is over the 20 square-foot exterior threshold, so the job is a full RRP job: certified firm, containment, no dry sanding or open-flame removal, cleaning verification at the end. If the shop is not certified, this condition goes to a firm that is. Had the appraiser written only the window trim, 16 square feet would have sat under the exterior threshold, and the exception would have applied to the RRP certification requirement, though not to working carelessly: the occupant and the worker still need dust controlled, and the worker's own exposure is governed by OSHA's lead standard for construction at 29 CFR 1926.62.

Condition 2, the handrail. The appraiser does not cite a code, but the rail has to be built to one, because a rail that fails the local inspector is a second problem. Under the International Residential Code, in the edition the jurisdiction has adopted, a handrail is required on at least one side of a flight with four or more risers (R311.7.8), at a height of 34 to 38 inches measured vertically from the sloped line of the tread nosings. Six risers clears the four-riser trigger, so the rail is a code requirement as well as an appraisal one. A rail fastened into drywall rather than blocking or studs will pass the appraiser's eye and fail the first time someone falls against it.

Condition 3, the furnace. This is the condition most likely to be smaller than it looks. The house was vacant and the gas service was off. If the gas utility restores service and performs its leak check, and the furnace then runs, there is no repair at all, just a re-inspection with the utilities on. Gas service to a vacant house is restored by the utility, not by the trade opening the meter valve, and nobody lights an appliance on a system that has not been leak-checked. A sibling article covers putting a shut-down house back into service. If the furnace still does not run once gas is on, it becomes an ordinary diagnosis with a deadline.

What the shop told the agent on Monday. Paint goes to an RRP-certified firm, and at 28 square feet with containment and cleaning verification, it is the long pole. The handrail is a half-day carpentry job. The furnace needs the gas utility first, and the agent should call them today because utility appointments can take days. Order the 1004D re-inspection for a date after all three are done, not one at a time, because each trip is a separate appraiser fee and a separate scheduling delay.

What changes the answer

• The year built. Move the house to 1985 and condition 1 is about protecting the wood, not lead. RRP does not apply, ordinary prep and paint does, and the job shrinks from the long pole to a day.
• The loan type. On a conventional loan, the appraiser has more discretion to leave peeling paint as a cosmetic note. On the same house with an FHA loan, a pre-1978 build makes it a near-certain condition.
• An appraiser who got it wrong. If the furnace works and the appraiser simply could not run it, the fix is a re-inspection, not a repair. If a condition names something that is not there, that is for the lender to raise with the appraiser through its own process. Federal appraisal-independence rules, Section 129E of the Truth in Lending Act at 15 USC 1639e, bar parties to the transaction from pressuring the appraiser, so the trade does not call the appraiser to argue. Give the agent or the loan officer your written findings and let them take it up.
• Weather. Exterior paint in a cold month may be impossible to complete before closing. Some loan programs allow an escrow holdback for weather-delayed exterior work, on the lender's terms. That is a lender decision, and the agent has to ask for it early.

Where an appraisal condition and an inspection finding collide

The same peeling paint may be in the buyer's home inspection report too. They are not the same request. The inspection finding is negotiable: the seller can refuse it, give a credit, or fix it. The appraisal condition is not negotiable between the parties; only the lender can lift it. A seller who has agreed to a credit for an inspection item has not dealt with the appraisal condition for the same item, and closing will still stop on it. When you quote, ask which document the work answers to, and if it is both, write the scope to satisfy the stricter one. See related: Repair Versus Credit at Closing.

References

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, Minimum Property Requirements and appraiser reporting
• VA Lender's Handbook (M26-7), Minimum Property Requirements
• 40 CFR Part 745, Subpart E (EPA Renovation, Repair and Painting rule), certification and the minor-repair thresholds
• International Residential Code R311.7.8, handrails, in the edition your jurisdiction has adopted
• See related: Completing Appraisal-Required Repairs