According to HUD Handbook 4000.1, the intended users for an FHA appraisal report are FHA and the mortgagee. FHA appraisals are not a guarantee that the property is free from defects. The appraisal establishes the value of the property for mortgage insurance purposes only. If you are appraising a property that needs some cosmetic repairs but meets FHA minimum property requirements (MPR) in its current condition, you should make the appraisal “as-is.” Here is some guidance on cosmetic repairs vs. MPR repairs.
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When can an FHA appraisal be completed “as-is” vs. “subject to”?
An FHA appraisal report may be rendered:
- “As-is,” if the property meets MPR in its current condition
- “Subject to completion per plans and specifications on the basis of a hypothetical condition that the improvements have been completed,” if the property is under construction
- “Subject to the following repairs or alterations (list them) on the basis of a hypothetical condition that the repairs or alterations have been completed,” if the property needs repairs in order to meet MPR
- “Subject to a required inspection based on the extraordinary assumption that the condition or deficiency does not require alteration or repair,” if the appraiser notes a potential deficiency but cannot determine whether it is an actual deficiency
You may complete an as-is appraisal for existing property when minor property deficiencies (which generally result from deferred maintenance and normal wear and tear) do not affect the health and safety of the occupants, or the security and soundness of the property.
Cosmetic/minor repairs are not required. However, they must be reported, and they must be considered in the overall condition when rating and valuing the property.
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