Dear Real Estate Adviser,
I’m buying a home using a Federal Housing Administration loan. I did my own private inspection and found a lot of problems. When the FHA inspector went to examine the house, he didn’t find anything! I think the broker selling the house, or the lender, knows the FHA guy and might have worked a deal to not report problems. What action can I take?
— Reginald L.
That FHA guy you mention was almost certainly an appraiser, not an inspector. There’s a difference. An appraiser determines the property’s value for the lender while an inspector looks for flaws and structural integrity, makes recommendations for needed repairs, and summarizes what the home’s maintenance needs will be.
While FHA appraisers, like inspectors, will examine most of a home’s major structural components, they’ll do as part of market-price assessment that compares the seller’s asking price to the sales prices of “comps” — similar, comparable homes — in the area, also factoring in such things as location, neighborhood and proximity to schools.
Such appraisals, which are required by the U.S. Department of Housing and Urban Development for all FHA-insured loans, are a bit different from conventional appraisals because they by law must also focus on life-safety areas such as steps, decks, roofs, railings, possible lead paint and fire egress. While you as a potential buyer probably paid for the appraisal (though that’s negotiable), the appraiser was appointed by your FHA lender. The lender wants to make sure the home has sufficient worth to meet the loan-to-value ratio, or the percentage of the property’s value that you’re mortgaging. For example, an appraisal would prevent a borrower from getting a $250,000 loan for a $200,000 home.
So, was the appraiser in cahoots with the bank? You bet! And there’s nothing unethical about that. However, it’s not unheard of to find dubious collusion among real estate agents, appraisers, inspectors and lenders elsewhere. The last real estate cycle, in fact, was rife with it. As a result, mortgage-fraud laws have been toughened up a bit.
By the way, you still need to hire an inspector. With you in tow, he or she will thoroughly comb over the place in search of flaws and trouble spots, allowing you to point out firsthand those specific trouble areas you identified. Your agent, if you have one, should go along as well. The inspector will help you prioritize any actionable items in terms of cost and safety. Your purchase agreement, I presume, specifies that the sale is contingent on an acceptable inspection.
While this information would have helped you earlier, buyers should always get an inspection before the appraisal is ordered. If the inspection yields too many concerns, the buyer can back out without incurring that appraisal expense. You did things in reverse order. A good agent would have informed you of this to possibly save you the appraisal expense.
Anyway, here’s hoping the seller addresses any post-inspection action points or at least offers you credit so you can take care of them.
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