A HUD consultant creates a Specification of Repairs (SOR) after inspecting a property. A SOR includes all of the work that is to be completed in a renovation project. Each labor and material item is sorted, along with its cost, into one of 35 categories and labeled either “mandatory,” “recommended,” or “desirable.”
“Mandatory” repairs are defined by work that is required to bring the property up to minimum Federal Housing Administration (FHA) standards in regards to health, safety, and marketability.
“Recommended” repairs are those suggested by the HUD consultant that could provide potential benefits for the prospective homebuyer. An experienced HUD consultant is able to provide insight on renovations/repairs that are often times missed by the homebuyer. A popular example is moving the laundry room up to the floor where the bedrooms are located.
“Desired” repairs or wish list repairs are renovations added by the homebuyer in order to help build their dream home. Granite countertops, stainless steel appliances, and a Jacuzzi tub in the master bathroom are some of the most popular wish list items.
Once the Specification of Repairs (SOR) is prepared it will be sent to the appraiser to aid in the appraisal process. The SOR is a fundamental part of the appraisal process because it allows the appraiser to imagine the home with all of the future work in mind, which allows him or her to create the after improved value. (It is important to remember that the FHA 203k is based upon the after improved value of the property.)
While most HUD consultants use a standardized format, there still exist slight variations between consultants. The lender is in charge of choosing a HUD consultant. It is very important that an experienced consultant is chosen to make sure the proper work is done and in a timely manner.
The Specification of Repairs (SOR) is the engine that runs the FHA 203k!