Property Condition Reports for Freddie Mac Small Balance Loans
Property Condition Reports, sometimes also referred to as Physical Needs Assessments (PNAs), are one of the third-party reports required for the Freddie Mac SBL application process. Just like Environmental Site Assessments (ESAs), Property Condition Reports generally need to compiled by an experienced testing and/or engineering firm. While, like ESAs, the contents of a Property Condition Report are mainly the concern of the testing firm, the lender, and Freddie Mac, borrowers should still understand them, as they can have a major impact on whether an Optigo Small Balance Loan is approved.
In a Property Condition Report, each part of the property must be analyzed and ranked from excellent to poor, based on its current condition. Below, we have included a shortened outline of the details of a comprehensive Property Condition Report in order to enhance your understanding of the reporting process:
Mortgage, Consultant and Property Information
This section contains general information about the property, including the address, the reporting date, the age of the buildings, the name of the inspector and the inspection company, and information about the lender.
Building and Material Characteristics
This section contains basic information about the building, including:
- Building type
- Mechanicals (HVAC)
- Amenities (site)
- Construction type
- Foundation type
- Mechanicals (plumbing)
- Problem materials/equipment
- Life/Safety devices
- Unit Type
- Unit Type Number of units
- Number of units inspected
- Storage units
The site analysis component of the Property Condition Report examines various physical aspects of the property, including:
- Maintenance structures
- Roadways/Parking lots
- Site Utilities
- Site fences
- Swimming pool and/or spa
Mechanical and Electrical
Another part of the report involves a review of the building’s mechanical and electrical systems, including:
- Hot and cold water distribution
- Domestic water heaters
- Fire Extinguishers
The dwelling units section of the report examines individual aspects of units on the property, including:
- Unit entry door(s) and frame(s)
- Countertops and sinks
- Bathroom improvements
Structural, Building Envelope and Common Area Furniture, Fixtures and Equipment
Yet another part of the report will examine the condition and integrity of building’s structure, envelope, and external fixtures, including:
- Foundation (structural)
- Exterior walls (paint/finish)
- Doors and frames
- Common area improvements, including:
- Community facilities kitchen
- Community facilities appliances
- Community clothes dryers
Required repairs listed on Property Condition Reports are typically classified into four different categories, as detailed below:
- Critical and Priority Repairs: Critical and priority repairs are defined as property repairs that need to be completed for the property to have a reasonable level of habitability and marketability. In general, these repairs will need to be completed before Freddie Mac will agree to approve a loan.
- PR-90 Repairs: PR-90 repairs are generally not considered critical, but are still very important, and will need to be completed within 90 days in order for Freddie Mac to continue with the loan transaction. PR-90 repairs typically include ongoing property damage issues, as well as imminent safety issues.
- Priority Repairs: Priority repairs should be completed as quickly as possible but are are not as important as PR-90 repairs. Priority repairs include any building or property aspects that violate federal, state or municipal laws or zoning regulations, as well as violations of accessibility guidelines (including the ADA), minor fire safety issues, or serious maintenance issues that have not been recently addressed.
- Operational Repairs: These are the least pressing repairs, but are still expected to be completed within a reasonable timeline. They generally include minor deferred maintenance, minor accessibility issues, and other similar repairs.
Repairs can also be classified into two other categories, including:
- Replacement Reserve Items: These are substantial repairs that the inspector believes will be needed over the term of the loan, as well as two years after. To calculate this, inspectors must look at the estimated useful life (EUL) of a building system/component, and the remaining useful life (RUL) of that particular system.
- Routine Repairs and Maintenance: These are defined as ordinary and everyday repairs that are expected to be made throughout the term of the loan. Generally, these repairs will be done by onsite staff members and will cost less than $3,000 per item.