The Loan Officer’s Guide to Appraisals, Part 1:  The Final Inspection

Hey friends!  Welcome to the very first post in our all-new series The Loan Officer’s Guide to Appraisals.  In this blog post, we’re starting with the end.  Well – not really the end, but one of the last parts of some appraisals – namely the final inspection.  We’ll briefly look at what a final inspection is – for those who may be new to the business – and most importantly, we’ll give you steps you can take to make the most of an appraiser’s return visit to a property.

Of all the pages that make up an appraisal report, most loan officers are first concerned with the value, and then, if there are any conditions.  If the report states the appraisal is made as-Is, then everyone breathes a sigh of relief, and moves one step closer to closing.  But if the report states the appraisal is subject to repairs or inspections, then more work must be done.  And usually, after that work, the appraiser will have to revisit the property.

Before we get ahead of ourselves, though, let’s look at the most common instances that require a final inspection.

Most of our final inspections are done because either (1) the home is new or being remodeled; or (2) the home does not meet FHA/USDA/VA  or other standards.  

When a home is being built or renovated, appraisers often complete an appraisal subject-to the home (or renovations to the home) being finished.  We base our opinion of value on the hypothetical condition that the home will actually be built/renovated just like the builder or homeowner said it would be.  To check and make sure everything was done according to plans, the lender usually sends the appraiser back out after the home is complete, to do a final inspection.  At this point, the appraiser checks the original appraisal, plans & specs, and all other relevant information to make sure it is complete, and built per plans.

Much more common, though, are property deficiencies.  All government loan programs have specific appraisal guidelines that usually go above and beyond what is typically required in a traditional, conventional loan.  I’ve blogged about some of those items here.  If the appraiser notes any deficiencies, the appraisal is then completed subject-to repairs or re-inspection.  Once those repairs are complete, the appraiser is called back out to verify that the home now meets all applicable standards.

As a lender, one of your goals is to get your borrower to the closing table as soon as you can, and with as few hiccups as possible.  So when an appraiser has to come back to a home to re-inspect, that can cause delays and cost the borrower more money, neither of which anyone will love.  However, this process doesn’t have to be so painful, and if you follow these next steps, you’ll be well on your way to being your borrower’s hero.  

Again, here are three tips to getting through the final inspection process quickly and successfully.  Three tips, three words to remember:  Read, Communicate, Plan.

1. Read carefully.  The appraiser should clearly spell out what repairs are to be completed, or indicate that the appraisal is subject to plans and specs (for new construction or remodel).  If there are any specific conditions, read those carefully.  If a repair needs to be done in a particular fashion, the homeowner or seller will need to make sure they follow the appraiser’s recommendations.  Look at the photographs included in the report for guidance.  Don’t assume you know how to remedy the deficiency, as this could lead to a second final inspection if not done correctly.
2. Communicate clearly.  As a loan officer, this means that you communicate to the buyer/seller or borrower the specific instructions found in the appraisal.  To make sure nothing is missed, I suggest you copy and paste the relevant portions of the appraisal and send that to your borrower.  If you’re communicating to a Realtor or other third party, keep in mind that they’re in the middle where communication often breaks down.  So make sure you know exactly what is being required, and that you relay that information very clearly.  And, if anyone has a question, or needs something clarified, call the appraiser!  Yes, you can talk to the appraiser about this, and we love to help, so if we can clarify the conditions we made in our appraisal, we’ll be happy to do so!
3. Plan accordingly.  This one is tricky.  When should the appraiser be notified that the repairs are complete?  Or, when should a builder let you know to send out the appraiser for the final inspection?  My advice is to make that call early.  Lenders, encourage your builders or borrowers to let you know that the repairs will be done on xxx day, and if they can, give you as much notice as possible.  Why?  Because contrary to popular opinion, an appraiser usually can’t just drop everything and run out to the property to do a final inspection.  We have days and sometimes weeks of appraisals scheduled already, and sometimes it can be tough to fit in a final inspection.  So here’s an example:  You’re financing a new home, and the home is nearing completion.  The builder knows for a fact that the home will be done and ready for the appraiser in seven days.  Have the builder communicate that now!  Then, go ahead and order the final inspection, but have the appraiser plan on going out to the property in seven days (or eight, just to be safe).  That way, the appraiser gets it on the calendar, and can call the builder the day before, just to make sure everything has been done.  Easy!  The same can be said for repairs.  If the Realtor or borrower knows the peeling paint will be repaired in a few days, make sure they know to call the bank so that the lender can relay that information to the appraiser.

Finally, here are five frequently asked questions that if you don’t have now, you will have at some point in your lending career.

FAQ #1:  What are the most common repairs that may require re-inspection?

Answer:  In our neck of the woods, we see a ton of peeling and chipping paint, so for any FHA/VA/USDA loan, that will require repair and re-inspection.  Other items include utilities not being on, missing water heater TPR valve discharge pipe, a roof at or near the end of its life, or repairs mentioned in the purchase agreement not completed at the time of the appraisal inspection.

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FAQ #2:  What do I need to keep in mind when lending on manufactured homes?

Answer:  Manufactured homes follow most of the same guidelines as a typical stick or site-built home with one very important exception (when working with FHA financing):  a foundation inspection.  FHA requires a structural engineer to inspect the foundation to ensure it meets HUD standards; or, offer suggestions for repair in order to bring it up to standards.  The appraisal will be made subject-to this inspection, so if you have the report already, it’s best to send that to the appraiser at the time the order is sent.  If the appraiser has the engineer’s report before the appraisal report is finished, then the appraisal won’t need to be made subject-to the inspection.

FAQ #3:  Does the original appraiser have to re-inspect or can that be done by someone else?

Answer:  The original appraiser does not have to reinspect, but it’s always best if they can.  The original appraiser knows best what repairs need to be done, because they’ve seen the home already.  Occasionally we’ll receive an order asking us to complete a final inspection on a property we didn’t appraise, because the original appraiser is unavailable.  That’s fine, as long as the lender sends the new appraiser the original appraisal report, as well as detailed information about the needed repairs or inspections.

FAQ #4:  Can the homeowner or Realtor take pictures and send them to the appraiser?

Answer:  This is without a doubt the most frequently asked question we get at our office.  Unfortunately, no one other than the appraiser engaged to complete the report can complete the reinspection and take photos.  The appraiser will need to physically inspect the home to ensure everything was done that needed to be done, and new photographs will be taken by that appraiser.

FAQ #5:  Can’t the appraiser just get the final done in a day or so?

Answer:  In a perfect world, yes!  However, it’s just not that easy.  Final inspections take time, just like anything else, and often there’s significant travel involved if the appraiser covers a wide territory.  While the report writing takes much less time, and the on-site visit is usually shorter than a typical appraisal inspection, the appraiser usually can’t just drop everything and go re-inspect a house.  That’s why it’s important to follow the steps we outlined above to make sure you get on the appraiser’s list early!

For loan officers, the final inspection process can sometimes be time-consuming, and frustrating.  But by reading, communicating, and planning well, the final inspection can be completed easily and quickly, so you can get your borrowers to the closing table in record time.

If you have any questions about the final inspection process, or about the appraisal process in general, feel free to give us a call anytime!

Committed to helping you understand your home’s market value,

Ryan Bays, SRA, AI-RRS