You’ve heard the term, “buyer beware”, but here’s a new one for you, “seller beware”. FHA, one of the most used loan programs in America for individuals who have low amounts for a down payment or not so good credit, have released their new appraisal Manual. What does this mean to sellers? A seemingly innocuous change that has significant ramifications.
Take for example the case of the “missing GFCI receptacle”, not called out by a home inspector, but by an FHA appraiser. Under the new FHA Single Family Housing Policy Handbook 4000.1 (so there were really 4000 of these things?), what may have been code when a home was built, if FHA is going to issue the purchase loan, then it has to be brought up to current building code.
This is an issue on so many levels, but let’s start with the obvious. If a buyer wants a home that meets current building codes, they ought to consider buying a new home. To put the regulatory burden of upgrading a home to current building codes will be, in many cases cost prohibitive to sellers who accept a purchase contract where an FHA purchase loan will be used by the buyer. Then why on earth would a seller accept a purchase offer from an FHA buyer?
At another level, is it really a federal agency authority to regulate loans for some buyers, overriding historical authority for building code enforcement by local municipal governments? Talk about big brother.
Then there is the outright discrimination that is brought on by such a policy. Today it is th GFCI (ground fault circuit interrupting) that is less than 6 feet away from a sink, tomorrow what will it be? As we all know, federal government agencies are never happy with the power they have, they must always push for more. If sellers are going to be forced to upgrade their homes to meet current building codes for buyers, at no cost to the buyers, then where does that leave the equity position for sellers?
Sellers should think twice about accepting purchase offers that specify an FHA purchase loan, save they might be on the hook for significant hidden costs related to the sale of their home.