People in the real estate business know theres a big difference between an appraisal and a home inspection. But this difference may not be so apparent to others. To be sure, an appraisal results in a number representing the value of the house, and theres no such figure at the conclusion of a home inspection. But it seems that much of what the appraiser does in order to reach a conclusion is essentially the same as what a home inspector does.
The similarity between what appraisers and home inspectors do is especially striking if FHA financing is being used in the transaction; the FHA appraiser is called upon to make a variety of observations and judgments that are expected of a home inspector as well. Are the hand rails up to code? Is there peeling paint that could be a health hazard? Are the appliances that are included in the transaction in proper working order? Are there any roof leaks? Do the heating and air conditioning if present systems function correctly? Is water pressure adequate and is their proper drainage around the house? The list goes on and on.
It is no wonder that FHA buyers -- many of whom may lack experience when it comes to real estate purchases -- are sometimes inclined to forego having a home inspection because they mistakenly believe that essentially the same job has been done by the appraiser.
Concerns about this and >
Not only did Salomone voice concern about buyers failing to obtain home inspections, but also he cited problems occurring within the appraisal community itself. Salomone wrote as follows:
"Unfortunately, many appraisers have become wary of participating in FHA-insured home loan transactions given the confusion with the Handbook requirements. Concerns over liability are leading many appraisers to require the current homeowner to take time away from work to physically test washer/dryers, stoves, etc., so that the appraiser cannot be blamed for any >
The result is that many appraisers are increasing their fees for FHA appraisals. Some appraisers have opted out completely of FHA appraisals, or are asking for additional home inspections to comply with the Handbook."
In his letter, the NAR President offered three specific suggestions.
1 Remove "operate all conveyed appliances and observe their performance"
"Each party [buyer, seller, lender, agent] has a different interpretation of the requirement of the appraiser in evaluating appliances as the Handbook does not explain the extent of testing needed to determine if an appliance is operational. NAR members have told us that appraisers are being asked to run washer/dryers and operate stove burners, without any sense of how long to run the washer/dryer or how far up to turn the burner, in order to fulfill FHA requirements NAR asks that FHA require appraisers to determine whether the conveyed appliances are in a condition to be operated based on a visual observation, by noting connection to an electric or water supply, and remove the instruction to operate or observe their performance."
2 Change "observe, analyze and report" to "observe and report"
"According to the newly published Handbook, the Appraiser must observe, analyze, and report" that a property meets HUDs Minimum Property Requirements MPR and Minimum Property Standards MPS for safety and soundness purposes. The quoted language is new to the FHA guidelines for appraisals and can be construed to increase the appraisers scope of work, such that tasks traditionally undertaken during a home inspection are being covered by the appraisal."
3 Revise form HUD-92564-CN, For Your Protection: Get a Home Inspection
"to give consumers a clear understanding of the differences between a home inspection and an appraisal, FHA should consider:
Small suggestions, it would seem, but with big implications.
Bob Hunt is a director of the California Association of Realtors. He is the author of Real Estate the Ethical Way. His email address is .
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