Is the existence of a VA or FHA appraisal a material fact that must be disclosed?

QUESTION: The current version of the Exclusive Right to Sell Listing Agreement (form 101) has a provision that obligates a Seller to represent to his listing agent whether, to the best of Seller’s knowledge, an FHA appraisal has been performed on the listed property within four months prior to the effective date of the Listing Agreement. The Guidelines for completing the Listing Agreement (form 101G) explain that it is important to know if an FHA appraisal has been recently performed as it is potentially binding for a period of time following the date of appraisal for FHA financing. I just listed a new property. In the Listing Agreement, the Seller disclosed to me the existence of a recent FHA appraisal. Is the existence of that appraisal a material fact that must be disclosed to all potential buyers?

ANSWER: We don’t think so. However, we do think that the existence of the FHA appraisal may be considered material and require disclosure in certain situations.

In general, appraisals are nothing more than reports conveying one person’s opinion regarding the value of a property on a specific date. Appraised values fluctuate over time with market conditions, and opinions of value vary depending on the person doing the appraising. Therefore, appraisals are not normally considered material facts requiring disclosure.

However, where an appraisal has been completed in connection with an application for an FHA-insured loan, that appraisal will be used by the FHA (with some limited exceptions) for 120 days, regardless of who applies for a loan. In other words, the appraisal goes with the property, not the borrower. For that reason, if the Seller knows of a recent FHA appraisal, and the appraised value is below the list price of the property, the existence of that appraisal may directly impact the ability of a buyer using FHA financing to complete the transaction. If you, as the listing agent, become aware that an interested buyer is contemplating FHA financing in that situation, we believe the existing appraisal should be considered a material fact, and we recommend prompt disclosure of that appraisal to the prospective buyer.

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