The Disaster Area Inspection Report: 3 Things Everyone Should Know
A disaster area inspection report (DAIR) is required for properties that have been recently appraised in areas where the FEMA has declared a disaster, such as a wildfire or severe weather storm.
The first thing lenders need to understand is that it may not be allowed or safe for an appraiser to inspect the subject property yet. Class Appraisal clients can order three different types of disaster area inspection reports (listed on our website as CDAIR): exterior only, exterior and interior, or FHA. Lenders can expect that the neighborhood and improvements will be reported as being unaffected, having minor damage or having major damage. Some lenders allow the appraiser to use the 1004D form instead of the DAIR form. Please make sure to check with your lender regarding which form they prefer.
Here are more details on what to expect from a disaster area inspection report.
What Every Lender Should Know about a Disaster Area Inspection Report
1. General Requirements for a Disaster Area Inspection Report
An interior disaster area inspection report requires photos of the subject front, sides, street view, all rooms, neighborhood common areas and any damage. An exterior inspection needs photos of the front, sides, street view, common areas and noticeable damage.
For the report, an appraiser must determine if the subject property has sustained damage as a result of the disaster. If the property or neighborhood did not sustain damage, the appraiser must provide a comment certifying the inspection and his or her belief that there is no damage or reduction in marketability due to the recent disaster.
When a subject property does sustain damage as a direct result of the disaster, but the damage is minor, cosmetic or did not create a health and safety issue, an appraiser must provide an “as-is” report with detailed commentary and photos describing the disaster-related damage and recommended repairs, as well as a corresponding cost-to-cure/condition adjustment to address the impact of the damage, if appropriate.
If the damage suffered by the property created a health and safety issue or significantly impacted the marketability/value, the appraiser must provide a report “subject to” the required repairs and/or professional inspections with detailed commentary describing the extent of the damage and required repairs, plus deconstructive photos of the damage.
An appraiser must also comment on neighborhood conditions related to the disaster. If the neighborhood sustained damage, that appraiser should provide descriptive commentary and photos. He or she must also discuss any impact upon the neighborhood’s marketability/property value trends, or comment that the marketability has not been negatively impacted.
The disaster area inspection report should also include a comment on when the FEMA Incident end date has been declared. If an end date has not been declared, the appraiser should state that in the comments and note the date of inspection. A copy of the appraiser’s license and E&O insurance should be attached to the report.
2. FHA Requirements for a Disaster Area Inspection Report
For properties with pending loans or endorsements in disaster areas, a disaster area inspection report must be completed by an FHA roster appraiser and be dated after the declared end date. The report should be completed by the original appraiser. If that appraiser is not available, another FHA roster appraiser in good standing with geographic competence in the market may be used. New appraisers must be provided with a complete copy of the original appraisal.
The requirements for the report differs based on whether a loan was closed or not. For loans that haven’t been close, the FHA requires an on-site inspection report with interior and exterior photos; a statement of dwelling habitability; and a statement as to whether damage is less than, equal to, or above $5,000. When repairs are complete, an appraiser must also complete a final inspection with all of the above requirements and an appraisal update (form 1004D). The market value may have declined since the effective date of the original appraisal. In that case, a new appraisal supporting the loan amount prior to closing may be required.
If a loan has been closed, but not endorsed, the FHA requires a drive-by inspection with exterior photos; a statement of dwelling habitability; and a statement as to whether damage is less than, equal to, or above $5,000. The appraiser must also complete an appraisal update (form 1004D) Part B confirming the completion of repairs.
For damage less than or equal to $5,000, the appraiser must provide an inspection report that includes an itemized repair estimate with costs. If the damage exceeds $5,000, the lender must obtain an itemized estimate from a qualified third party. All damages, regardless of amount, must be repaired by licensed contractors or per local jurisdictional requirements. The property must be restored to pre-loss condition with appropriate and applicable documentation.
The FHA also requires that appraisers comment on neighborhood conditions related to the disaster and detail conditions of the subject property. If the property suffered no damage, then the appraiser must comment that the marketability has not been negatively impacted. The following addenda are also required: photos of the subject front, sides and street for exterior; photos of the subject front, sides, rear, interior and street; photos of any damage; copy of appraiser’s license; and a copy of the appraiser’s E&O insurance.
Since utilities may not yet be restored in affected areas during the time of inspection, FHA does not require the appraiser to ensure utilities are on.
3. Jumbo Loan Requirements Disaster Area Inspection Report
For jumbo loans, a damage inspection report must be dated after the FEMA Incident Period end date. An Incident Period is closed when an end date is listed on the FEMA website. An appraisal update (form 1004D) is required for jumbo loans, as well as an interior and exterior observation. Appraisers must comment on neighborhood conditions related to the disaster and detailed condition of the subject property. If the property suffered no damage, then the appraiser must comment that the marketability has not been negatively impacted.
The report for jumbo loans must be accompanied by the following attachments: photos of the subject front, sides and street for exterior; photos of the subject front, sides, rear, interior and street; photos of any damage; copy of appraiser’s license; and a copy of the appraiser’s E&O insurance.
The last thing lenders need to know is that if an inspection has already been completed and a natural disaster occurs during the course of the ongoing appraisal, the standard trip fee will be added to re-inspect and provide the following required responses provided it is safe to access the property. Appraisers should not attempt to access any property that is not safe. Let Class Appraisal know of the safety concerns, and the order will be placed on hold until the area is accessible.
– Brianna Valleskey