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REO, Cost To Cure, Checkbox 4

Discussion in 'Fannie Mae, Freddie Mac, USPAP' started by Susan Klimaszewski, Jul 30, 2007.

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  1. Susan Klimaszewski

    Susan Klimaszewski Junior Member

    0
    Jan 9, 2003
    Professional Status:
    Licensed Appraiser
    State:
    Texas
    We are having a disagreement in our office over what is the proper procedure when using checkbox 4.

    Background: REO duplex, 48 years old, possible mold, however we are not mold experts, severe wood destroying insect damage and Add-on has "slab foundation" that tapers out over the grass to about 1 inch and you can't see any other part of it. For all we know it is only 1 inch thick! And 100 other various "this thing is falling down around my head" problems.

    One of us says that when you give a cost to cure and you use checkbox 4, you dislose everything you see, but only price out the things that you can such as a price to replace the moldy/damaged sheetrock, tape and paint. A cost to replace eaten up wood then paint etc. HOWEVER, since check box 4 is based on the assumption that the condition or defiency needs no repair you do not adjust for the underlaying issue since you are requiring an inspection and you do not give a price to address the underlaying issue such as the mold or termites. It would then be prudent to reserve the right to adjust your final opinion of value based on the outcome of the required inspections. This opinion would seem to be reinforced by the assumptions and limiting conditions #5.

    Others here in the office say that when you give a cost to cure, you give a cost to cure for all of it regardless of if you used checkbox 4. That you should be enough of a professional to address the underlaying cause of the visible defects. This group says that checkbox 4 means that after you have adjusted for everything it a assumed that nothing else will be found and nothing other than what you adjusted for and gave a cost to cure for needs correcting. Example, you would give a price determine the source of the water leading to the mold, a price to remediate the mold and then a price to repair the mold damaged items.

    Anyone have an opinion?
     
  2. Deuce of Spades

    Deuce of Spades Member

    0
    Nov 7, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Florida
    I am not an REO expert, but here is my opinion and hope that others will chime in.
    It is my understanding that REOs are always 'as is' but you must CYA yourself in the addenda regarding inspections needed. Also, only make cost to cure to items obvious to the eye, covering yourself with verbage about unknown defects, additional unknown issues and the need for inspections and professional estimates that would require further review and possible change of conclusions on the appraisal.
     
  3. Rice Brewer

    Rice Brewer Member

    0
    Dec 14, 2004
    Professional Status:
    Certified Residential Appraiser
    State:
    Arkansas
    While I agree with the original post that CB4 SHOULD be part of the assignment results in such cases, Deuce is 100% correct.
     
  4. Webbed Feet

    Webbed Feet Elite Member

    8
    Feb 11, 2005
    Professional Status:
    Certified Residential Appraiser
    Ms. Klimaszewski,

    I feel using replacing moldy sheetrock for an example is a bad one. Because with mold you almost always have hidden damage. The "cost to cure" is implying the issue is solved and it's misleading in my opinion to be doing that when serious hidden damage is almost 100% for sure. All you accomplish is a B.S. cost to cure with a resulting value that has no meaning whatsoever. This is just clients improperly demanding appraisers proceed when inspections really need to be done first and repair bids obtained. That said, what is in blue above is correct. What I changed to brown is to ask a question of you. What is the point of reserving a right to change your opinion of value when the very meaning of an Extraordinary Assumption is the value may be altered if the assumption is found later to be false? Reserving such a right is not needed, it is already reserved by the very definition of an EA. Doing so is merely redundant.

    In blue above only makes sense if two values are being provided, a so-called "As-Is" value based on a "cost to cure", and the "Subject To" value based on the EA. Think this one over. IF an EA is used, the meaning of an EA is the appraiser does NOT know the full extent of damage or the true situation without outside professional inspections. The Appraiser doing this has just created a sweeping contradiction. They provided an "As-Is" value as if they 100% knew everything, and then opined under an EA as if they did not. .. Pretty fricking stupid if you ask me. One may be able to make sense out of that using both CB3 and CB4 for different items only. But as I am not a fan of "cost to cure" because it fails to represent market reaction and only represents "costs" instead, I feel one should still tread very carefully doing so.

    The line in red. You can tell this person that some people have called Webbed arrogant, but they are surpassing me in all regards on that front. Damn few appraisers are qualified construction experts and have Xray vision to boot. Even the very best and most experienced home inspectors (and I am talking about one I know that is an architect also) would NEVER estimate costs of repairs prior to opening the walls up when they see mold and know there is a water leak. I have seen photos of when the only sign of any issue at all was a three inch by three inch mold spot on the interior of the sheetrock that it ended up the verticle studs five to ten feet in two directions were 90% rotted out.

    I dispute that CB4 means that all by itself unless you frame an EA statement that is clear about what you are doing. The ONLY thing any appraiser can "cost to cure" in such a situation is cosmetic damage only. And that is not market reaction unless it is estimated and included. Beyond that, later .. like in court, it could easily be shown the appraiser did not know their ass from a hole in the ground when guessing at hidden damage. What I placed in green, without invasive inspections, without third party repair bids, would just be some appraiser full of themselves making wild ass guesses. "Professional" is not what comes to mind.

    Webbed.
     
    Last edited: Jul 30, 2007
  5. JSmith43

    JSmith43 Elite Member

    18
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    Mr Feet,

    That was a very good synopsis. Of course, it should have been edited by Ms Manners, from the Dale Carnigie Institute, but that goes without saying:rof:

    You are even right about the following:
    IMO, the merit of being right and on point outweighs the communication factors. Anyhow, I believe the style is merely a skit you are working on in hopes of becoming known as the Don Rickles of master appraisers.

    It would be foolhardy to opine a mold remediation cost since writing the specs before the forensics would be a bit of a challenge:) Just resist the request for all but cosmetic repairs or complete tear downs....even then, there just might be hazardous material removal costs, etc.
     
    Last edited: Jul 30, 2007
  6. Ross (CO)

    Ross (CO) Senior Member

    0
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Cost to cure.....beyond normal cosmetic aspects accruing over a span of time with poor to no maintenance or typical scheduled updating....is all too often garbled and confused. It inherently implies that it becomes the duty of the appraiser to encompass ALL that is not new, or perfect, or specifically appealing about a property......and make it all better.....in a wonderful "what if" kind of way. Excuse me, Mr. Client, do you want an average cure, a good cure.....or will you be investing in an excellent cure ? For the sake of unloading an REO property I bet they suggest a "Fair" cure as being adequate. What are the defined limitations there ? What is the "budget" that you are being awarded in making the preferred cures to the property ? Is your client defining ANY of that sort of thing with you at the start of the assignment, reconciling your time to do all that within the equally-discussed S.o.W. ?......and paying a fee to compliment all of your efforts ?

    As is.....in the context of providing a judgment and experiential opinion of CURRENT market value probably gives that client more immediate peace-of-mind than dragging everybody through the briarpatch on attempts to project aspects of future work and activity about a property which are NEVER going to happen, anyway ! For those of you who really DO serve the REO marketplace in a big way.....would you care to share how many of your clients actually TAKE your cost-to-cure numbers to heart...and actually DO make those ailments become "cured" before they sell their accumulated property to that savior willing to take it off their hands, and off their books ?

    Present the listed items and surely prioritize that list with most-impacting at the top and progressing toward those minimally-impacting at the end. Include a similar set of photos which will show your client what those "biggies" are, use CB4, and offer to assist with further help if that client truly wants the names of local rehab-remodel-remediation contractors who could help this client......if they REALLY feel that they want to CURE some of those problems ! (Truth probably is they do not want to cure any of those things !) Until then, as-is means....as is, and don't tie that proverbial anchor-chain around your foot for the sake of being too noble.
     
  7. Greg Bell

    Greg Bell Senior Member

    0
    Jul 7, 2006
    Professional Status:
    Gvmt Agency, FNMA, HUD, VA etc.
    State:
    Louisiana
    Bank REO'S I usually include paint and some cosmetic repairs to bring subject
    up to marketability.HUD and VA REO'S however just the bare minimum for habitability.So the bleached swastika on the front room carpet is cosmetic and is not called for repar...
     
  8. Don Clark

    Don Clark Elite Member

    3
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Virginia
    My opinion

    One of the reasons that lenders are finding alternatives to an appraisal is, in my opinion, that appraisers are becoming downright lazy.

    1. We don't want to do a cost approach even if the client wants or needs one.

    2. We will not take the time to learn, or even inquire as to whether or not we can or should do a cost to cure although appriasers forming an opinion of a cost to cure have been part of appraisal practice since the beginning.

    3. We assume that we know the value of a property "as is" even tho that would require some competence in first knowing how to estimate the cost to cure, and then subtracting the cost to cure from an opinion of market value to then form an opinion of an as is value.

    I see weeping and wailing, moaning and lot's of "Oh me, what shall" I do, I have no business" on this forum every day. Well, if you do nothing you earn nothing.

    I have always provided my client with a cost to cure for items that pose a problem or need repair if they affect

    Safety, Soundness, or Sanitary Conditions

    Unless and until appraisers start being appraisers again, and not just form fillers, you will all continue to lose business, and respect.

    If you do not have the expertise to do a cost to cure, do not do REO appraisals. It is that simple.
     
  9. Peter LeQuire

    Peter LeQuire Elite Member

    45
    Jan 3, 2005
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    I agree that Mr. Webberster is correct. However, I live in a simpler universe. If there are substantial repairs, evidence of that colored substance we refuse to call mold, evidence of structural deficiencies, or any other complex condition items to deal with, I will typically retreat from developing an "as is" value: there are simply too many issues to try to retreat for protection to an extraordinary assumption. While the universe of appraisal-orderers doesn't want to hear it, at some point I think I have to draw the line about what I do and don't do.

    It's more sensible to me to do an "as repaired" value, CB 3 being indicated, with as much CYA language as prudent about inspections, repairs, absence of harmful conditions, structural soundness, etc.
     
  10. JSmith43

    JSmith43 Elite Member

    18
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    Don,

    You hit on lots of good points, but I think there are multiple factors behind some of the behavior noted.

    For instance, the rewrite of Fannie forms and the word smith job on the certifications and limiting conditions put appraisers in an unprecedented box.

    Those not up to the task of scoping and clarifying their way out of it (as if that were 100% possible), are simply punting as a business decision, when they run up against things like the Cost Approach being demanded (secretly) for insurance purposes....or just because they fear someone somewhere looking at the report hadn't read the Fannie memo & actually might think it is a necessary approach, even though bountiful direct sales comparisons are available.

    Dirty Harry said a man's gotta know his limitations. I think he was talking about REO appraisers attempting to estimate mold cures, with or without invasive testing. There is nothing I'd rather do than crank out a few pages critiquing the '80's installation of Dryvit or some other EIFS product & propose a cure. But no one is likely to pay me $1,500 for the report & they will have none of this "self taught" stuff. Public school, University, and/or Trade Union education only, I guess.

    So Don, I agree with your general premise that the value added proposition of appraisal reports is waning. You are probably doing what you can to continue to give good advice to your customers and don't hold back on cost to cure estimates. You've got the experience, knowledge, and apparently, you are fearless:)
     
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