- The Washington Times - Wednesday, May 16, 2007

Q:My wife and I have been looking for the right house to buy for the last few months. We

are looking for a fixer-upper and hoping to get a good price. We found the perfect house in a great neighborhood for $350,000.

The house is structurally fine, but is in need of a lot of cosmetic improvements. There are holes in the plaster and the siding is falling apart. The good news is that similar homes in the neighborhood have sold for more than $400,000. We think we can fix up the house ourselves at a cost of less than $20,000.

We are able to put 10 percent down so we applied for a $315,000 mortgage. When the appraisal came in we were delighted to learn that it appraised for $360,000. The problem is that the lender is saying that the appraiser noted a list of items recommended for repair and has refused to close on the loan unless the holes in the wall are patched up and the clapboard siding is repaired.

We are planning to fix up the house in our own time when we can afford it. We don’t want to lose the house, and the seller doesn’t seem to care. Any advice?

A: You’re in a bit of a Catch-22 situation. The lender won’t lend you the money unless certain repairs are made. You plan on making these repairs but can’t make them until you obtain your mortgage and settle on the house.

The lender has one issue: marketability. The job of the appraiser is to not only valuate the property, but also inform the lender of the marketability of the property.

The lender is looking at a worst-case scenario. You default on the mortgage and the bank ends up with the property through foreclosure. The appraiser notes on his report that the property is not in “marketable condition,” meaning that the home will not easily be sold until certain repairs are made.

The price is great for a reason — the house is in lousy condition so nobody wants to buy it. But if the bank ends up with the house through foreclosure, it can’t easily sell the house without repairs being made.

Herein lies the problem. The bank is in the money-lending business, not the home improvement business. The lender is scared to death that it will end up with a piece of junk property it can’t get rid of without spending a bunch of time and money on it. The lender doesn’t want to be in that business.

I acted as a mortgage broker in a very similar situation. Let me tell you what I did.

m First, I phoned my appraiser and told him I needed the property to be appraised “as-is.” This means the value is not subject to any repairs or improvements.

m Second, I asked him what specific items he would be obligated to list as “adversely affecting marketability” of the property. It turned out that the appraiser was concerned with holes in the dining room ceiling and broken gutters.

m Third, I instructed the buyer to plaster the holes and re-attach the gutters with the minimal cost and effort. It turns out he made the repairs at a cost of less than $500.

m The appraiser then re-inspected the property and was able to complete the report in “as-is” condition and with no adverse notations.

Basically, the buyer had to spend $500 and a little bit of time to ensure that the appraisal report is not a red flag to the lender.

Remember that all appraisers are different. If your appraiser is unwilling to work with you on these issues, you should find a different appraiser. In my experience, most appraisers will be flexible in what they will note in the report.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail (henrysavage@pmcmortgage.com).

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