What does "subject to repairs" mean on an appraisal?

The value assumes the problem is already fixed

A "subject to" appraisal is a value with a string attached. The appraiser is saying: this is what the house is worth once these specific items are repaired. Not before.

Fannie Mae's rules spell out when that happens. If the appraiser finds a deficiency that could affect the safety, soundness or structural integrity of the house, the appraisal must be made subject to the repair, and the condition rating has to reflect the house as if the work were done. A house rated C6, the worst condition rating, must be appraised subject to fixing the deficient items, and the result has to be at least a C5.

Here is the part that trips people up. The number on the report is not today's number. If the roof is leaking onto the dining table, the value on the page is for a house with a roof that keeps the rain outside, which is a pretty reasonable thing to want in a roof.

What triggers it, and what usually does not

Common examples of problems that lead to a subject-to appraisal include a leaky roof, peeling lead paint, a major plumbing problem, wood rot or a broken heating and cooling system.

Minor stuff is different. Fannie Mae allows an appraisal "as is" when existing conditions are minor. Its examples include worn floors or carpet, minor plumbing leaks, holes in window screens, missing handrails and cracked window glass. The appraiser still has to report those items and reflect them in the value, but the lender is not required to make sure they get fixed before the loan is sold.

Loan type matters a lot here. FHA and VA loans have their own minimum property requirements, and they work differently from conventional loans. On FHA loans, for example, defective paint on a home built before 1978 has to be addressed, which catches a lot of sellers of older homes off guard. If you are selling to an FHA or VA buyer, read up before the appraiser shows up.

One thing I want sellers to hear: subject to is not a judgment about you. It is a note that one part of the house needs attention before a lender will put money on it.

Who fixes it, and who pays

The appraisal does not decide who pays. The contract and the negotiation do. The usual options:

• The seller makes the repair before closing. This is the cleanest path, and the most common hope.
• The buyer makes the repair before closing. Possible, but risky for the buyer. You are putting money into a house you do not own yet, and if the deal falls apart, you just did a stranger a favor.
• An escrow holdback. Money is set aside at closing and released once the work is done. Holdbacks are often sized above the repair estimate. The Motley Fool's guide puts the usual amount at 110% of the estimated repair cost. For postponed items on new construction, Fannie Mae requires 120% of the estimated cost (or the fixed contract price), completion within 180 days of the note date, and the items cannot exceed 10% of the as-completed value.
• Renegotiate the price and let the buyer handle it, if the loan program and lender allow that path.

Holdbacks are up to the lender and the loan program. Not every lender offers them, and the rules for an existing home can differ from new construction. Ask early.

How the lender confirms the work is done

After the repairs, the lender will likely want proof. The classic version is a completion report from an appraiser (Form 1004D or 442 under the UAD 2.6 forms). Under the new UAD 3.6 appraisal format, the Completion Report is its own separate report, and UAD 3.6 becomes mandatory for new appraisal reports submitted on or after November 2, 2026.

Fannie Mae allows completion to be verified with a site visit or a virtual inspection, and the documentation must include photos or other exhibits that can be checked. For certain repairs on existing homes, Fannie Mae also allows a borrower attestation letter backed by a qualified professional's signature, a professional report or paid invoices. Whether your lender accepts those alternatives is up to the lender.

When I do a completion inspection, I am checking that the items listed were done. I am not re-appraising the house. If the original report said "replace the water heater," I want to see a new water heater, strapped, not a receipt and a promise.

What to do when your appraisal comes back subject to repairs

1. Read the exact list. The report names the specific items. Fix those, not a vague idea of what the appraiser might want.
2. Get written bids fast. Your agents will need numbers to negotiate who pays, or to size a holdback.
3. Ask the loan officer about options. Can the lender do a holdback? What completion proof does it accept? What does the follow-up inspection cost and how soon can it be scheduled?
4. Keep receipts and take photos before, during and after. Paid invoices and clear photos make the completion step faster.
5. Do the work right. Use a licensed contractor where your area requires one, and pull permits when the work calls for them.
6. Leave the area visible for the reinspection. Do not stack the new water heater closet full of holiday decorations the day before.

If you think an item was called in error, ask the lender how to raise it, with facts: a roofer's report, a licensed inspector's findings or photos. Facts beat feelings on both sides of the clipboard.