Cost to Cure Help Please

Discussion in 'Urgent - Help Needed' started by AZguy33, Nov 30, 2010.

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  1. AZguy33

    AZguy33 New Member

    0
    Sep 25, 2009
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    Here goes -

    Subject has a one car garage that has been converted to living area. Owners have disclosed that the conversion was done without a permit and it is not reflected in county records. The room is of similar quality to the rest of the house (you do step down). Conversions of this nature are not uncommon in the area (though the "best" available comparables do not have conversions) and the room could have market appeal.

    The lender has requested that the room be treated as a garage and the appraisal completed "as is" with a cost to cure.

    IMO - I will not count the conversion in the GLA. Make an extraordinary assumption that the permitting entity for the subject would allow the conversion to remain as is. Provide an estimate to cure but not adjust the comps for the cost to cure. Could I or should I put "room conversion" on the grid and give it value based on the market (like one might with a workshop?) Suggestions? Thank you kindly.
     
  2. Lakefront boater

    Lakefront boater Member

    0
    Jul 9, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    Michigan
    If the room is of similar quality to the rest of the home I take it that it is complete and finished, so then your providing a cost to cure to due to the illegal status of the improvement?

    I'm trying to clarify what it is that your providing a cost to cure if not just the legal permissible aspect of the improvement?
     
  3. AZguy33

    AZguy33 New Member

    0
    Sep 25, 2009
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    The lender is asking for a cost to cure to turn the room back to a garage.
     
  4. Terrel L. Shields

    Terrel L. Shields Elite Member

    50
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    That is a hypothetical condition because it is contrary to what exists.

    Because it was built without permits does not turn it to fairy dust. Value the property by finding other unpermitted garage conversions.

    BTW, I have seen some pretty nice garage conversions but after 20 years I have yet seen one that actually matches the GLA. Usually, they do not change out the heat and air which is now too small for the house unless it was badly over-designed. And the slab floor tends to be a problem in comparison to wood subfloors. Insulation is often incomplete since few people insulate the garage exterior walls (did they retrofit the insulation in the walls? etc.)

    Find sales with garage conversions that "look a little low" on a per SF basis...generally these are similar.

    Do not treat that area as if it were something else (like a workshop) nor value it as if it were not there. If you do, then the report has to be HYPOTHETICAL...again, it would be contrary to what is actually there....and will your lender be happy with that in a fannie loan or FHA? Heck no.
     
  5. Webbed Feet

    Webbed Feet Elite Member

    2
    Feb 11, 2005
    Professional Status:
    Certified Residential Appraiser
    A) Posters telling us the intended use is as important to our answers as you bothering to ask what intended use is before you take on an assignment!

    B) The client instructions are an oxymoron. There is no such thing as "as is" when what you are doing is pretending that what is really there .... is not really there. So the client staff requesting that has no idea about appraisal standards and the USPAP. You on the other hand are supposed to. When they say "as is" like that they are asking for CB1 on the 2005 Fannie forms, right? Only that is an unacceptable assignment condition that way because it would be hypothetical as Brother Shields pointed out to you. AS well as the SOW on most all Fannie 2005 version forms do NOT allow modification of the SOW like that without using the other reconciliation check boxes to so do! If the MARKET would count that room as GLA, then you opting not to do so is ALSO a hypothetical condition! We reflect the market, not ignorant lender requests to solve their lending desires.

    C) More 2005 Fannie form stuff. Are you taking this off the 2005 Fannie forms and reporting in some other way? If not, you cannot use that EA without using CB4. Sorta makes the client's assignment condition an "oops!" huh?

    D) You DID ask this client about "Intended Use" right? And, any and all other needed assignment conditions if going to a GSE? Oh, you DID ask what, if any, GSE it was? Fannie accepts illegal things IF the appraiser proves they are market acceptable. What does that mean? It means that for any CB1 using report on a Fannie form going to Fannie that comps with similar illegal improvements are required to get the job done. If you don't have them, Fannie will reject the appraisal and loan. You know this stuff, right? Oh, and you know that these comps have to go all the way through closing with the involved parties knowledgeable of the illegal aspects and any repercussions they may represent? Otherwise, the comps will not reflect market reaction as per the definition of value... right?

    E) You've researched the jurisdictional authority and know what happens in that location if they find out such an illegal conversion was done.. right? You also know what seller disclosure statements ask and require in that location regarding selling such a property through a listing broker... right? Do you think buyers in that location just MIGHT get properly advised by a real estate broker regarding such matters in that area? If so, how do the buyers react to such information?

    Once you know all of the above... you might be ready to then advise your client regarding the SOW on this one.

    P.S. Good questions and really good timing to seek some help.... ;) Ignore my harsh wording.. I'm just the man behind the curtain anyway.
     
    Last edited: Dec 1, 2010
  6. CANative

    CANative Elite Member

    26
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Just provide them your estimate of reconverting the garage. No need to change anything else. If all they want is the estimated costs then what's the problem with adding that into your report? Garage or additional living area. It's probably about the same.
     
  7. Webbed Feet

    Webbed Feet Elite Member

    2
    Feb 11, 2005
    Professional Status:
    Certified Residential Appraiser
    What if in that location, once an illegal conversion has been done without required permits, it then takes the payment of penalties and permits to legally convert it back to a garage? Now, does not the so-called "cost to cure" include all of those things, not just the "hard costs" of undoing what was did?

    Clients thinking they can solve everything under the Sun, in order to get a CB1 report, by asking for a "cost to cure" needs to be squashed. So does appraiser's tossing meaningless dollar numbers at such things in reports upon command.
     
  8. CANative

    CANative Elite Member

    26
    Jun 18, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    I would do the report "as is" because other properties have similar conversions (according to the OP). I would tell the client I'm not going to fool around with hypothetical conditions such as pretending the garage is not converted. I would provide them with an estimated cost to reconvert the garage and let them use this information any way they want.
     
  9. 23Degrees

    23Degrees Member

    2
    Jan 31, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    If one proceeds "as is" and the jurisdictional authority requires a building permit for such a conversion then one should consider if the "illegal" box under zoning compliance should be checked in order to avoid preparing a misleading report. Although I have heard that lenders hate the illegal box just as much as they hate the "subject to" boxes.
     
  10. AZguy33

    AZguy33 New Member

    0
    Sep 25, 2009
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    Hypothetical condition ~ as is?

    Help please,

    My subject has a garage conversion performed without a permit. As a result, the lender wants:

    A cost to cure
    An "as is" report
    For me to include the 1 car garage (imagine it is there) in the grid

    How can this be done USPAP compliant?
     
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