Lender-Required Repairs: What Georgia Agents Need to Know

​One of the most misunderstood issues in a real estate transaction is lender-required repairs or appraisal conditions.
A buyer may complete their due diligence, the parties may negotiate repairs (or agree to no repairs at all), and everyone thinks they're headed to closing. Then the appraisal comes back and the lender requires repairs before the loan can be approved.
That's when the confusion starts.
What Are Lender-Required Repairs?
Lender-required repairs, sometimes called conditional repairs, are repairs the lender requires before funding the buyer's loan.
The lender's concern is not whether the home is perfect. The lender wants to ensure the property is acceptable collateral for the loan. Most lender-required repairs involve issues related to safety, habitability, or significant property condition concerns.
Common examples include:

• Exposed electrical wiring
• Missing handrails
• Roof deficiencies
• Broken windows
• Active leaks
• Structural concerns
• Non-functioning HVAC, plumbing, or electrical systems

 
These issues are often identified during the appraisal process and may result in the lender requiring repairs before closing.
FHA and VA loans often have stricter property condition requirements, but conventional lenders may also require repairs depending on the property's condition.
Appraisal Issues and Inspection Issues Are Not the Same Thing
Agents should also remember that a home inspection and an appraisal serve different purposes.
A home inspector works for the buyer and may identify dozens of maintenance items or future concerns.
An appraiser works for the lender and focuses on value and property condition as it relates to the lender's risk.
Just because an inspector identifies an issue does not mean the lender will require it to be repaired. Likewise, a lender may require repairs that neither party expected.
The Georgia Contract Issue Agents Often Miss
Here's where many agents get tripped up.
Lender-required repairs are not the same thing as contractual repair obligations.
Under the GAR Purchase and Sale Agreement, buyers and sellers negotiate repairs during due diligence. The parties may agree to repairs, agree to a credit, or agree that no repairs will be made.
That contractual agreement is separate from the lender's underwriting requirements.
For example, a seller may have refused all repair requests during due diligence. Later, the lender may require a repair before approving the buyer's loan. That does not automatically mean the seller is obligated to make the repair.
The lender can require the repair for the loan.
The contract determines whether the seller is required to perform the repair.
Those are two separate issues.
At that point, the parties must decide whether the seller will complete the repair, the buyer will complete the repair if permitted, the parties will renegotiate, or the transaction will terminate if no agreement can be reached.
What Agents Should Do

• Set expectations early when a property has deferred maintenance or obvious condition issues.
• Avoid telling clients that a lender will or will not require repairs.
• Explain the difference between inspection issues, appraisal issues, and contractual repair obligations.
• Allow extra time for repairs and appraisal re-inspections when needed.
• Encourage clients to consult with their lender regarding loan requirements and contractual obligations.

 
Key Takeaways
A lender can require repairs as a condition of making the loan. That does not automatically create an obligation for the seller to make those repairs.
As Georgia agents, it's important to understand the difference between lender requirements and contractual obligations so we can properly advise our clients, manage expectations, and avoid unnecessary disputes as we move toward closing.