Hi Linda, I do these frequently and I dont agree with all the responses here. Basically, the FHA underwriter can ask for anything to be done. Period. The underwriting is wacky and the underwriter holds a lot of power in the transaction. IF the offer has termite on it then a termite report is a condition of the purchase and the termite report gets given to the underwriter. Particularly an inexperienced underwriter will ask for everything under the sun because all of their work is scrutinized and they want to cover their butts, especially in the hostile environment banks have created for themselves and with 10% unemployment, underwriters see their jobs as fragile. So, if the underwriter has asked for something you all need to work together to figure out what is being requested and how you can proceed, in fairness, IF you want to proceed. This is not a good time or a good market to get stubborn and while your contract may not require you as the seller to do any section 2 repairs, you want the buyer to get their loan, IF you want to sell your home.
For others out there reading this, one way to avoid termite issue with FHA is to not condition the purchase with the WPA or termite. FHA loans do not require termite clearance and can close without termite inspections.If the buyer conducts the termite inspection during the course of the purchase, just like any other inspection, they can cancel their purchase if this repair issue is too much for them, just like if a roof repair was too much and the seller is unwilling to repair or credit the buyer for the issue.
A fully executed contract with WPA/Termite can be amended in escrow, if all parties agree, to waive termite inspection and repair, and this works if the inspection report has not already been given to the buyers lender.
Keep in mind that even if you waive inspection for termite, on FHA and VA, appraisers will often call out conditions of the property that will need to be corrected and will be called out for by the underwriter, these can range from peeling paint, to termite dry rot damage that is visually apparent to the appraiser and more.
This is why I tell my buyers and sellers that nothing is a done deal until the loan is funded, you can even get conditions at the very last minute no matter how hard we are all working thoughout the entire term of the escrow.