FHA Appraisal Rules: A Reader Question

A reader asks, "Does the “no exposed wiring” rule apply to an unfinished utility closet that has the furnace and water heater inside it? This is merely a smaller utility closet space that was never finished as it was never meant for any type of living area."

FHA appraisal rules in HUD 4000.1 include a set of instructions for the appraisal. Those instructions include a section that specifically addresses the electrical system of the home.

In general this section tells the lender and appraiser about defective conditions which must be reported, including a variety of issues such as an electrical system that is not adequate to support the entire property.

Those instructions also include the following:

"The Appraiser must examine the electrical system to ensure that there is no visible frayed wiring or exposed wires in the dwelling, including garage and basement areas, and report if the amperage and panel size appears inadequate for the Property. The Appraiser must operate a sample of switches, lighting fixtures, and receptacles inside the house and garage, and on the exterior walls, and report any deficiencies. The Appraiser is not required to insert any tool, probe or testing device inside the electrical panel or to dismantle any electrical device or control."

Note that the appraiser is not required to be an electrician or an expert in electrical systems. The appraiser's job is not to inspect the home to insure it is free from any and all defects, nor is the FHA appraisal intended as a stamp of approval that a home is defect-free. Borrowers should always pay for a home inspection to get the most detailed look at the home.

The short answer to the reader's question is that exposed wiring is, in general, not permitted. Wiring that is encased in some form of protective covering, but still "exposed" is not directly addressed by this section of HUD 4000.1, but state or local building code may have a say in whether that is permitted or not.

If a condition in the home "passes" FHA minimum standards, but is not permitted by state/local code, the local jurisdiction would definitely apply. Borrowers should know that FHA requirements never override or overrule these ordinances.