Get Ahead of Appraiser Required Repairs: How Sellers Can Avoid the Most Common Closing Killers

Appraisal-required repairs for government loans

While conventional loans offer more leniency on appraisal-required repairs, government-backed loans have stricter property requirements.

Appraisals are required for all home purchases seeking FHA, VA, and USDA loans, which have similar property requirements. The property must meet the U.S. Department of Housing and Urban Development’s (HUD) minimum property guidelines.

In addition to the repairs for conventional loans, federally-funded loans typically require these items to be repaired, usually before closing.

1. Water heater relief valve

Gas or electric water heaters have an expansion relief valve, a pipe that comes out of the water heater that lets pressure out. “If something happens to your water heater, the valve keeps the water heater from blowing up like a grenade,” says Fries. While it’s an important safety issue, the repair is generally not expensive.

2. Water infiltration

Water infiltration issues involve damage created by moisture seeping or leaking into a home. The damage can be caused by internal plumbing problems as well as rainwater or improper drainage from outside. Basically, if there’s a drip or a visible moisture stain, you may need to find the source, fix the problem, and repair the damage.

3. Wood-to-earth contact

You need to have a little bit of space between wood and dirt to prevent moisture from wicking up from the ground, as well as to avoid giving insects (such as termites) and other critters a superhighway into your home. For example, “If you have a deck and the wooden supports go directly into the ground, that’s a deal-killer,” says Fries. While he warns against solving the problem with temporary support jacks, brick or concrete footers can solve the issue. Don’t look to your overgrown bushes to camouflage the problem; FHA requires inspectors to go into and photograph the crawl space.

4. Upgraded outlets

Older homes may still have some pesky two-prong outlets. Bring those geezers into the computer age by upgrading to the three-pronged model.

5. Rotting exteriors

Any wood rot on windows, doors, fascia, or other exterior trim will likely be flagged for repairs.

6. Pull-chain light switches

If your crawlspace, attic, or closet has a single lightbulb turned on by a pull-chain, according to the HUD’s guidelines, you’ll have to replace it. While this is listed as an inspection point, Fries says he has never seen pull-chains become a problem.

7. Handrails

FHA requires handrails when appropriate, but the criteria is open to interpretation. Most appraisers should default to the local building code in the home’s geographical area.

8. Encroachments

If a structure on your property encroaches on an adjacent lot, it’s no longer eligible for FHA mortgage insurance. That means a government loan is unlikely unless you can get the neighboring property to agree to allow the encroachment. You also need to disclose the existence of other encroachments, such as a fence that is a little over the neighbor’s property line. Then, the appraiser can determine if the encroachment does or does not impact value.

9. Unpermitted work

If you completed home renovation work without a permit, there’s generally no way to ensure its safety. You might have to retroactively obtain a permit for the work completed if you want to sell to a buyer with a government-backed loan.

10. Utilities

If you have multiple living units on your property, the utilities must each be separated. As with a conventional loan, they must be in working order.

11. Stovetop ventilation

Your kitchen must be properly ventilated with working fans. Frequently, stoves have a small vent hood in the microwave above. That fan only recycles air back into your home through a charcoal filter. Depending on code, that ventilation may be acceptable for an electric stove. However, a gas stove should usually be vented to the outside.

12. Bedroom windows

All rooms categorized as bedrooms on your property must have a window with outside access in the event of a fire or other emergency.

13. Attic and crawl space inspection

Lenders require photos of the crawl space and attic to make sure the structural integrity isn’t compromised by mold, leaks, fire damage, cracked beams, or animal invasion. However, sometimes, Fries says, appraisers encounter “readily observable” hazards such as plastic bags, paint cans, or gasoline near the furnace — all of which make the report.

The guidelines can seem exhaustive and complicated, so when in doubt, remember it typically all comes down to health and safety. If there’s something in your home, from a loose floorboard to an unsecured handrail, that could jeopardize the safety of an occupant, it’s likely going to be flagged.

The appraiser flagged an issue — now what?

Other than issues related to specific code or safety criteria, the majority of the appraiser’s checklist involves obvious items that should have been resolved before showings.

Because her proactive approach works, White reports, “99.9% of the time, appraisers are not asking for repairs on properties on either side of the transaction.”

But sometimes, despite your best efforts, an appraiser identifies repairs that must be made. It can be something as colossal as a roof replacement or as simple as installing a carbon monoxide monitor or installing a side gate that leads to a backyard pool.

If your home appraises below market value or significant repairs are required, buyers may have the option to walk away from the sale.

Sellers can also take the initiative to anticipate and avoid that scenario altogether.

“In a multiple-offer market,” White says, “sellers may choose a cash buyer with no appraisal required.”

Sellers and their agents can also request an appraisal waiver to the contract. In the northern Atlanta suburbs, Fries estimates nearly 20% of contracts have clauses that give buyers the right to inspect, with the property selling as-is.

“While the property may not qualify for FHA, you can sell your home and waive a lot of these normal repairs — unless it’s a safety issue,” says Fries. “In other words, the water heater, gas fumes, broken window panes, steps without a handrail — anything a toddler can get hurt on.”

In addition, White says, “Properties financed by conventional loans are supposed to have all the equipment and appliances working with no known defects,” she says. “But, a lot of times, they don’t require those repairs to be done to close.”

In the case of government loans, not all repairs must be made before closing, but they must be completed within a year of closing.

Who pays for those repairs depends on your purchase agreement with the buyer. Most purchase agreements include a clause regarding who will pay for repairs up to a certain value.

“Normally, required repairs become a negotiation, which depends on the market,” says White.

“If they have backup buyers, most sellers are unlikely to do the repairs,” she says. “They’re likely to tell the buyer to pay for and be liable for the repairs and arrange for the appraiser to come back.”

However, if the appraiser comes back with multiple, large-scale issues flagged, there’s a chance both conventional and government-backed mortgages will be denied. The property might not be safe enough for a bank to back it. In that case, you might consider selling your home for cash.

Bottom line — know the minimum property standards and make the repairs

Sellers can easily avoid the most common appraisal-related closing killers by simply making the same improvements and repairs most top agents require to get their home in top shape for sale.

A top-rated real estate agent will have the experience and expertise to successfully guide you through the home inspection and selling process. Locate a great agent using HomeLight’s Agent Match tool, which analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

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