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Nasty Fixer

Discussion in 'General Appraisal Discussion' started by Smokey Bear, Jul 22, 2005.

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  1. Smokey Bear

    Smokey Bear Elite Member

    0
    Dec 8, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    This house has got to be the worst I have ever been in. Bath: only 1 bath, no sink, tub fixtures missing, no way to turn on/off the water, it trickles down, and drains straight to the basement where there is standing water (dirt basement). Kitchen: cabinet doors falling off/broken, drawers missing, thick grease on walls. Ceiling water stains thoughout due to roof leaks, roof was replaced one year ago and no way to know what the interior damage was.

    Carpet threadbare throughout. Broken windows throughout. Burglar bars with no release, front door has no lock but a security gate with 2 deadbolts, one of which is a double cylinder, which poses a fire hazard, and if I remember correctly, is illegal for residential doors in CA. Holes in the walls, broken glass on outside stairs, panel on heater missing in basement, debris leaning against water heater, missing electrical plates/switch plates, junk everywhere, filth everywhere, finish trim, missing or damaged, hasn't been painted in years. Possible mold but I wasn't going to get close and sniff to make sure. No dead things, thank God, but the kid giving me the tour explained that his grandpa had been killed and they had to keep the body in the basement for a while - and it's that kind of neighborhood.

    Looks like bulldozer bait to me, but I've been asked to appraise "as is". I've found a bunch of fixers, but how do you decide what's comparable? I know what I saw but am sure there woudl be more if a home inspector looked at it, like probably termite work needed etc.

    Are there some extraordinary assumptions I need to make? And none of my comps so far have health and safety hazards like this one, but one of my comps had $45k of termite work needed and a new roof needed, and mine has a new roof so that might be comparable, but I'm at a loss on how to compare the missing bath/sink to some other problem.

    Help????
     
  2. TEL2002

    TEL2002 Elite Member

    2
    Jan 16, 2002
    Professional Status:
    Retired Appraiser
    State:
    Louisiana
    Try comparing to average comps for the neighborhood and then hit for the cost to cure.
     
  3. Smokey Bear

    Smokey Bear Elite Member

    0
    Dec 8, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    I wouldn't have a clue how to come up with a cost to cure on this - unless it's the cost to rent a bulldozer. :( And I sure wouldn't want someone relying on my cost to cure considering how much work it needs and how far off I could be. I have enough fixer comps, it's just comparing them that's the hard part.

    Besides, fixers are more similar comps and they're available so that's what I should use.
     
  4. Ann O'Rourke

    Ann O'Rourke Junior Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    California
    A lot of my work is estate work and other non-lender work, so I regularly appraise properties need work.

    In my MLS, (San Francisco Bay Area, East Bay Regional MLS) they are often called:

    Contractor specials - sales prices show that the discount for repairs needed is much less than the cost - holes in roof and floors, kitchen and bath non functional, foundation bad. In other words, non-livable even for tenants.
    Fixers/Handyman specials - can be lived in while owner does repairs. Usually a modest discount off cost to cure.
    Cosmetic work - carpets, paint, etc. In my market, these often sell for more than the cost to cure because the market is very strong.

    My market is very strong, so homes in any condition can be sold. I have also appraised in bad markets, where homes needing carpets and paint sell for less than cost to cure.

    Of course, the bottom line is land value.

    You really need to look beyond housekeeping and assume the house is vacant with all the junk removed.
     
  5. KD247

    KD247 Senior Member

    0
    Jan 24, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    For your sales comparison, you can sidestep the cost to cure by bracketing the Subject's condition with that of several comparable sales. If you have a couple that are slightly worse and a couple that are slightly better, you'll probably develop a fairly tight value range.

    Even if you know the exact repair costs, if you look only at homes in average condition, you'll have no indication of the degree of discount that buyers demand for homes in poor condition. Depending on the market in your area, that discount may affect value more than the cost of repairs.

    In terms of the Sales Comparison, you only need to be able to evaluate the condition of the properties as thoroughly as the most likely buyer. If the most likely buyer is a contractor (or someone who would seek the advice of a contractor), that raises the bar somewhat. If you're not comfortable judging the relative conditions of the Subject and the comparable sales, you might need to work with someone who is.

    Addendum:
    While I was on the phone, Ann slipped in her reply. I wholeheartedy agree that the discount can vary significantly, depending on the market. And that applies to almost any deficiency of a property. In this market, when there's only one house available, buyers are likely to say, "Freeway, what freeway? I'll take it!"
     
  6. Tony in Ohio

    Tony in Ohio Member

    0
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Ohio
    Use fixers and cost to cure.

    The key factor is what is the likely buyer is going to do?

    Will he just clean it up enough to rent it, or is there a strong enough level of owner ocupancy in the neighborhood to rehab it and sell it? Either way though its your going to need to get a good feel for how much work needed done to your "fixer" comps in order to see how this relates to them.

    You should find someone with experience in estimating costs or use a cost repair manual, but don't worry to much. last time I got roof quotes the costs varied more than 150% so you cant go too far off if you have a little bit of experience. :rofl:
     
  7. Bill Baughn

    Bill Baughn Senior Member

    0
    Mar 10, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Nevada
    Cynthia,

    Is this a cash out refi? j/k :rofl:


    Bill Baughn
     
  8. xm39hnu

    xm39hnu Senior Member

    0
    Jul 10, 2003
    Professional Status:
    General Public
    State:
    Florida
    What's the HBU as improved?

    If it is not legally habitable, then HBU as improved isn't SFR, so shouldn't be compared to habitable SFR's. If there are NO comps when you go out in area, back in time, then my conclusion would be to rent that dozer.

    What was HBU as vacant? To improve, or to leave vacant? If "improve," then with what? SFR? What size, style, design, etc.? What's the typical improvement?

    Some of the SoCal appraisers have cited 5-year-old SFR's which have been demolished to accommodate new construction. Doesn't sound like you have that kind of market. You said it's the kind of neighborhood where you might keep a dead body in the basement for a while. This does not sound promising as a fixer-upper.
     
  9. Mike Boyd

    Mike Boyd Elite Member

    0
    Jan 18, 2002
    Professional Status:
    Retired Appraiser
    State:
    California
    In Ann's market area you could pitch a tent at 8 AM and have a dozen offers on it before lunch time.

    If you are going to do REO work, you need to acquire the skills necessary to estimate accurately the cost to cure. As a rule of thumb, I use actual cost and double it to account for market reaction. In a market such as Ann's where it is completely built out. it will go for top dollar for the land value alone. If you leave a section of the foundation you bypass much of the cost for permits, school and fire fees, water and other utility hook-up fees. Those fees alone can be $50,000 or more.
     
  10. xm39hnu

    xm39hnu Senior Member

    0
    Jul 10, 2003
    Professional Status:
    General Public
    State:
    Florida
    Okay, then Mike. If she's going to leave the foundation, then rent a backhoe with a bite bucket on it. I know what you mean about those fees. In CA, they can make up a significant part of the price.

    Sometimes I'm glad we don't have zoning here. And my rednex are stingy, and right canny about curable/incurable stuff.
     
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