Questions about REO negotiations, appraisals, and home + termite inspections (sales, appliances)

[ecsdude]

Hi, with an FHA loan, I think there is a separate appraisal done? Does the buyer usually get to choose the appraiser to hire, or is that more in the hands of others? If the buyer gets to choose at least one of the appraisers, is it a good idea not to go with one recommended by lender or realtors on either side? And should the property be found to appraise for less than the buyer's offer amount, are banks usually inclined to lower the sales price accordingly, or do they move on to some other buyer's offer which doesn't require passing an FHA appraisal?

Also, similarly, for home inspections and termite inspections, should the buyer generally hire people to do these inspections that aren't recommended by the seller/lender/realtors?

Further, are home and termite inspections usually something paid by buyer, split between buyer and seller, or paid by seller? And are termite inspections recommended?

Lastly, what exactly can you depend on a home inspection to tell you? Will it tell you if there is mold, if there is faulty electrical wiring, if the garage opener or AC doesn't work, if the plumbing is faulty/clogged, if there are pest/insect infestations or problems, if the structural foundation is flawed or compromised, and the condition of the roof?

Thanks in advance!

[sacramento916]

Originally Posted by ecsdude

Hi, with an FHA loan, I think there is a separate appraisal done? Does the buyer usually get to choose the appraiser to hire, or is that more in the hands of others? If the buyer gets to choose at least one of the appraisers, is it a good idea not to go with one recommended by lender or realtors on either side? And should the property be found to appraise for less than the buyer's offer amount, are banks usually inclined to lower the sales price accordingly, or do they move on to some other buyer's offer which doesn't require passing an FHA appraisal?

Also, similarly, for home inspections and termite inspections, should the buyer generally hire people to do these inspections that aren't recommended by the seller/lender/realtors?

Further, are home and termite inspections usually something paid by buyer, split between buyer and seller, or paid by seller? And are termite inspections recommended?

Lastly, what exactly can you depend on a home inspection to tell you? Will it tell you if there is mold, if there is faulty electrical wiring, if the garage opener or AC doesn't work, if the plumbing is faulty/clogged, if there are pest/insect infestations or problems, if the structural foundation is flawed or compromised, and the condition of the roof?

Thanks in advance!

There typically is one appraisal for an FHA loan. The procedure is roughly the same except there is more emphasis on potential safety hazards for the property. Missing appliances are often a problem. Missing built in stoves are a NO for FHA, but not missing portable stoves for example. A damaged roof would be an issue.

If you are in a very competitive market and want to have as little problems with an overly critical FHA appraisal that may derail your deal, you should make sure that your purchase contract do not mention that the property inspections will be done. You will still have your inspection period to complete it, but delinking the inspections from the contract makes it easier to get some section 1 items passed. Many of these items can easily be fixed at a discount by a handyman, but bringing them up in the escrow process will derail or slow down your deal.

If the appraisal comes in lower than the purchase price. Typically the banks accept the lower appraisal. But it depends on the scenario. If the appraisal is SIGNIFICANTLY lower, we are talking in 20% lower for example, the banks may balk at the deal. And it may be up to the buyer to order a second appraisal.

As for who the buyer should hire to do the home inspection. It really depends on how much you trust your realtor. I generally have very good relations with my clients because they know I look out for their interests, so they go with my property inspector who is extremely professional. In fact, there were a couple times when his inspection caused my buyers to back out, and I actually advised them to do so after finding some serious unknown issues with the house. So it depends on your relationship with your realtor.

Typically, the buyers pay for the home inspection and pest inspection. Although theoretically, they all can be up for negotiation. However, in practice, and especially when dealing with REO's, these are paid by the buyer. The pest inspection is very important and you should not pass this up. It is also the cheaper one of the two, ranging from $60-100. However, it exposes some of the most important problems you may have with the house including termite, water damage, dry rot, etc.

The property inspection costs around $300-450 depending on the house and inspector.

I typically have my clients schedule their pest inspections first, because they are cheaper but they also reveal some very important potential problems with the house. Therefore, if we find a house with $17,000 in section 1 damage including serious issues such as termites, then we can back out before even wasting $400 doing a property inspection. So my client's only lost are maybe $70 for the pest report. This has happened multiple times and they were very glad that they did not waste much money on a potential money pit.

The property inspection typically tests the systems of the house such as the utilities, the plumbing, the AC. It does not cover mold specifically but if there are clear signs of mold or water damage, the property inspector will reveal this. The pest inspection should also reveal any significant mold damage though they do not conduct a specific mold test. But evident mold damage will be revealed by both inspections.

The property inspection also checks for structural defects with the property and very professional inspectors will point out specific problems with the property that may not be up to code or may pose potential safety hazards. You will be surprised that some brand new homes may also have these problems which is why it is important to do your due diligence and get your inspections done within your contingency period.

Let me know if you have any more questions.