- The Washington Times - Thursday, August 19, 2004

Q: I am under contract to buy an older home for $440,000. The appraisal from the

mortgage company came in at $450,000, which delighted us.

We arranged a professional home inspection and discovered that there are some cracks in a retaining wall. The seller is refusing to make these repairs, and our contract is now in jeopardy.

Why didn’t the appraiser put this in his report? How could he have appraised the property $10,000 above the contract price when the house has this damage?

A: Unless the loan is guaranteed by the Federal Housing Administration, the job of the appraiser isn’t to inspect the property for major or minor problems. That’s the home inspector’s job.

The appraiser’s job is to offer an objective and professional opinion of the property’s market value with the use of supporting data. Let me go into a bit more detail.

The appraiser and the home inspector provide two important but very different services.

An appraisal is required to obtain a mortgage loan. The appraiser is supposed to analyze your home and compare it to other homes that have recently sold in the neighborhood.

Here’s how it works. Let’s say your house is a center-hall Colonial with four bedrooms, two baths and a two-car garage.

The appraiser will sift through recent sales data and search for similar homes that have recently sold. Since your appraisal came in $10,000 higher than the contract price, he may have found comparable homes, or “comps,” that recently sold in excess of $440,000.

Alternatively, he may have found inferior comps that sold for $440,000. For example, a house in your neighborhood almost identical to your home may have sold recently for $440,000. The only difference is that you have a finished basement with a bathroom, while the basement is unfinished in the comparable property. The appraiser decides to make a $10,000 adjustment, increasing your market value to compensate for this amenity.

This is a simple explanation, but the bottom line is that the appraiser’s job is to make sure that the contract price is reasonable when compared to general market values of similar homes.

If the property has some obvious visual problems or defects that could adversely affect the property’s “marketable condition,” the appraiser is obligated to identify these items on the report. Examples are holes in the drywall, major water stains or unfinished electrical work.

A home inspector provides a different service. His job is to go through the house and examine every detail. His report will give the buyer his professional opinion on the condition of the plumbing, heating, air conditioning and electric work.

A buyer wants a home inspection to make sure there are no hidden problems with the house.

If the home inspector identifies a problem, the buyer can negotiate a new contract with the seller, as long as the contract was contingent upon an inspection that’s satisfactory to the buyer.

Most residential real estate contracts require that the functions of the house are in “working order.” This includes plumbing, electrical and heating. I doubt that a crack in a retaining wall would mean that the house is not in “working order.”

My advice would be to determine the seriousness of the crack and the cost to repair. If it’s either not serious or inexpensive to fix, go ahead and buy the house. However, if it is determined that it is a serious problem, your home-inspection contingency will allow you to get your deposit back and walk away if the seller refuses to negotiate.

Henry Savage is president of PMC Mortgage in Alexandria. Contact him by e-mail ([email protected]pmcmortgage.com).

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