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Cost to cure

Discussion in 'General Appraisal Discussion' started by PhysicalDepreciation, Nov 10, 2009.

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  1. PhysicalDepreciation

    PhysicalDepreciation Sophomore Member

    2
    Jun 6, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Rhode Island
    Can someone explain to me a situation where the estimated cost to cure figure would not necessarily reflect the same exact amount when making the adjustments in the sales comparison grid. Assuming that the appraisal is to be done is "as is".
     
  2. Mr Rex

    Mr Rex Elite Member

    115
    Jan 12, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    I think it hardly ever is the same amount. The SCA is supposed to reflect the market reaction to a particular attribute or deficiency. Cost to cure is based on actual costs, and as we all know cost does not equal value. For instance, a hypothetical house needs interior painting. Painting CTC is $2350, market reaction might be $5k etc.
     
  3. Michigan CG

    Michigan CG Moderator Staff Member Moderator

    166
    Nov 1, 2006
    Professional Status:
    Certified General Appraiser
    State:
    Michigan
    Cost does not equal value. The cost to cure may have some elements of incurable obsolescence.

     
  4. PhysicalDepreciation

    PhysicalDepreciation Sophomore Member

    2
    Jun 6, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Rhode Island
    Thanks you very much. Just argued with an underwriter for about 20min beacuse they wanted me to put my cost to cure estimate figure as the adjustment figure in the grid. After researching the market the best I could, I used a figure I thought was more accurate(it was a number less than the cost to cure).
     
  5. PhysicalDepreciation

    PhysicalDepreciation Sophomore Member

    2
    Jun 6, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Rhode Island

    I kept hammering this point in, but to no avail. Apparently I wasn't being consistent and it didn't make any sense that the cost to cure wasn't simply subtracted from all my comps. Have to run now, but thanks for the quick replies.
     
  6. Ted Martin

    Ted Martin Senior Member

    0
    Jan 17, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Kansas
    I've had the same argument, sometimes I get paid sometimes not, but I do have the satisfaction of being right.
     
  7. jlabauve

    jlabauve Member

    0
    Feb 24, 2009
    Professional Status:
    Certified Residential Appraiser
    State:
    Louisiana
    Many, many times the cost to cure is not equal to the market reaction to the insuffiency in the property.

    The way I explain it to non-appraisers is the following scenario. You are interested in purchasing a car. The dealer has two exact cars on the lot - same number of miles - same condition - same model. However, in one model the front and rear seats have been removed, as well as the steering wheel. The cost of the missing items and the cost to install them are $3000. If the vehicle with none of the parts missing is priced at $12,000, are you going to pay $9,000 ($12,000 - $3,000) for the one with the seats missing? The answer is usually "NO". The knowledgeable buyer would want some sort of a discount for the hassle factor and the length of time that he can't use the vehicle while the repairs are being made.

    Now on to real estate. I once appraised a property that a carpenter was building himself. After framing it up and putting in some (not all) plumbing and electrical, he moved his family in. Bare concrete floors, only a couple of rooms sheetrocked, none floated/taped or painted. One toilet, sink and tub installed. They lived there, or actually camped out there, while he continued to work on the property. After a couple of years, the wife is divorcing him. Go figure. What will the knowledgeable buyer pay for this property? Is it the completed value minus the cost to complete? What do you think?

    I interviewed investors regarding this type of property, and came to a conclusion of value. Needless to say, the adjustment was not the cost to cure, but considerably larger.
     
  8. Elliott

    Elliott Elite Member

    29
    Apr 23, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Oregon
    Steven J,
    Can you explain why a brand new car when it rolls off the dealer's lot is
    worth 15% less? The car has almost exactly the same amount of utility
    on either side of the sidewalk.

    There is always going to be a difference between actual cost (including the
    effort made by the person hiring, supervising, and paying for the work) and
    the market's conception of its value to the house.
     
  9. PhysicalDepreciation

    PhysicalDepreciation Sophomore Member

    2
    Jun 6, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Rhode Island
    Preach on my fellow appraisers....I'm in 110% agreement with all of you. It's just agravating when trying to explain it to someone who refuses to listen to you. Oh well, atleast I'm not losing my mind. I've done tons of cost to cures in the past and I've never had a client argue this with me until today.
     
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