Property Condition Considerations

Written By: Frankie Lacy, Op-Ed Writer

As many of us around the country desperately cling to the hope that spring will come sometime this year, we can also stop to think how the long, harsh winter may affect property conditions. Roof, gutter, and foundation damage from prolonged snow pile up, ice damming, and flooding is a very real possibility for homeowners in 2014. As a result, we may have some underwriting considerations to address as we prepare for spring and summer business.

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When reviewing the appraisal report, it is important to take note of any comments the appraiser has made regarding the condition of the subject property. Often the appraiser may suggest an inspection or repairs for certain items in the home. In addition, the appraiser may take photos of damaged areas for your inspection.

Pay close attention to the condition rating of the subject property on the comparable grid. Properties rated C5 or C6 may not be acceptable for delivery to investors and the agencies. The comparable sales used to determine the market value of the subject property should have a similar condition rating to the subject property. Any appraisal where there is an “across the board” adjustment on all comparable sales for condition should be questioned. The appraiser must explain why they were unable to find comparables in a similar condition to the subject.

The appraiser’s final recourse is to issue the report “subject-to” repairs or inspection. In this case, the appraiser is requiring certain repairs to be completed, or damage to be inspected prior to issuing the final valuation opinion. Once the repairs or inspection are completed, that information must be forwarded to the appraiser so they can issue a final inspection. In the case of a “subject-to” repairs report, the appraiser will re-inspect the home to insure the repairs were completed in a satisfactory manner. Although the appraiser may issue a final inspection, ultimately it is the underwriter’s responsibility to determine if the property meets investor and agency property condition guidelines.

Underwriters must also determine when a property is eligible for a repair escrow holdback versus a property where repairs have to be completed prior to close. When the property has a safety or livability issue, it is not eligible for a repair escrow. When the issue is non-safety or livability but cannot be completed due to weather conditions, repair escrows are appropriate. For example: mold inspections, installation of a furnace in a cold weather state, or foundation repairs must be completed prior to closing. Installation of siding or roof repairs when there are no livability concerns (such as holes into the house) are acceptable for a repair escrow.

If the completed repairs are substantial, a certificate of occupancy may be required prior to close. This document is issued by the county or city officials responsible for inspecting dwellings to insure new construction homes and major improvements on existing homes are up to code. Repairs that may require a C of O are major electrical or plumbing work, new additions, and new structures (such as a garage) built on the property site.

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As an underwriter the best way to approach verifying acceptable property condition is to read all appraisal comments and examine property photos carefully. If ever you feel the information in the report is insufficient, reach out to the appraiser and ask the necessary questions or ask for additional photos. Even if the appraiser does not require inspections, underwriters can request licensed contractor inspections on issues they feel may need remediation. At the end of the day, the underwriter must be able to confidently approve the subject property without concerns regarding safety or livability issues that affect the marketability of the home.

About The Author

Frankie Lacy - As an active NAMP® member and a NAMU®-CMMU designee, Ms. Frankie Lacy is a 13-year mortgage industry veteran with extensive conventional mortgage underwriting experience. Frankie is also a mortgage instructor for Mortgage Underwriter University ( Topics of Frankie's expertise include: Fannie Mae, Freddie Mac, USDA Rural Housing, underwriting to investor overlays, self-employed borrowers, personal and business tax return analysis, rental income, condos/co-ops/PUDs, and more. Frankie is a Davenport University graduate with a degree in Business Administration. If you're interested in becoming a writer for NAMP®, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.