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Spoilage

Discussion in 'General Appraisal Discussion' started by David R. Stevenson, Dec 23, 2004.

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  1. David R. Stevenson

    David R. Stevenson Elite Member

    0
    Dec 6, 2003
    Professional Status:
    General Public
    State:
    Tennessee
    I have this house that has site conditions which impacted the structure with a large

    amount of stigma.

    Structural problems related to "Karst" site conditions (small sink hole).

    New, this house could sell for more than $266,000, if

    the site did not have the sink hole ....

    the house were put on a proper foundation for the slope ....

    .... with all this stigma .... financing will be almost impossible to get ....

    .... the house sold on 9/2003 for $122,000 ....

    .... people went in and did a shoddy remodel job .... needs new roof, foundation

    crack, CBS wall crack, ceiling crack (fresh), sand bags for water intrusion,

    .... with so stigma .... how can I figure out an "as is" value? Should it not

    equal "liquidation value" at this point?

    Say $80,000 for the land less $20,000 for house removal,

    say $60,000.

    --------------------------

    If fixed up and property has at least 30 years of remaining physical life - does it

    have 30 years of economic life for lending purposes?

    If the fruit business has spoliage - does not real estate also have spoilage? -

    in terms of financing capability.

    I see this as spoilage as the property has lost its liquidity to a real estate

    mortgage ....

    ... if the improvements can not get a mortgage - then only cash buyers step-in ...

    ....cash equivalency in this case "liquidation value" .... yes?
     
  2. Karl

    Karl Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Arizona
    What a big word IF is, Bet a RE Agent could make it sound terrific. Such as the Sink Hole adds to the home due to not having that persky choir of taking out the dump just drop into hole provided by mother natue. This is truly a enviromentlist dream home watch mother nature work from your own patio. in small very small print, (For a unknown period of time.)

    Home Owners policies have an exclusion for sink holes I would NOT want to be the Appraiser on that assignment that gave this home more than land value & what would the value of a BIG Hole be??
     
  3. Ross (CO)

    Ross (CO) Senior Member

    0
    Jan 17, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    What is the purpose/use of the appraisal report ?

    $266,000 (new, without sinkhole) minus $122,000 (sold, 9/'03, with sinkhole) equals a residual of $144,000.....the market impact of the site having the sinkhole and the same (as-is) home where it stands.

    The hole is not going away any time soon. It will only get wider, deeper and perhaps fall in upon itself even though the overall process is veeeerrrry slow in geological perspective. A lender will be obligated to think of the next 30 years.

    With all those known physical aspects and detriments existing now in the structure.......why not just build new in an opposite and safer direction on the site, in an up-slope perpendicular direction away from the linear trend defining the sinkhole, and allow it to be said that some structures DO have a reasonable life-limit for service as a domocile.

    Your best view of true market value will likely come from a much broader search of the market for sales of homes of similar age and condition....which were ALSO poised in similar proximity to......a known sinkhole when the anxious seller and the willing buyer agreed.

    The sinkhole....has a very unbiased opinion in the entire scenario.
     
  4. Steve Owen

    Steve Owen Elite Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    The question of "as is" or "subject to" some condition is a different question than the value definition.

    You could appraise this property "as is" or "subject to removal of current improvements and construction of new improvements according to plans and specifications."

    You could also appraise this property for "market value," "liquidation value," "anticipated sales price," "quick sale value," or any number of other possible value definitions.

    Whether to appraise it "as is" or "subject to" is usually a client decision, but doing a property "subject to" some specified set of conditions requires plans and specifications and a carefully drawn hypothetical condition or conditions.

    What value definition to use depends of the purpose of the appraisal. It is usually determined by what the client needs the appraisal for. If the appraisal is for a mortgage loan to be done according to FANNIE MAE, FHA, or VA requirements, or any other client intending to sell the loan on the secondary market, then the value definition they will require in almost all cases is "market value."

    From what you have described I suspect that this property could not be financed in the secondary market, so if that is your client's intent, plan on losing this job. Also, from what you describe, I suspect that this is a complex appraisal assignment (if the assignment still exists after the client finds out about the property condition) and will require the help of an appraiser with specialized knowledge.
     
  5. David R. Stevenson

    David R. Stevenson Elite Member

    0
    Dec 6, 2003
    Professional Status:
    General Public
    State:
    Tennessee
    Specialized knowledge of what exactly?

    Steve,
    :)
    I understand its H&BU as improved - home could support a 2,800 L.A. and sell for as much as $144 per square foot - $403,200. - this is a value based on a good source.

    I understand that in real dollars - the land is worth about $80,000 or so.

    Looks like the site could be cleaned off for $20,000.

    HB&U "as is" - with two hyptheticals ....

    - a specialized buyer who butresses up the foundation .... home is salvagable and has a likely chance of an economic life longer than the term of any mortgage. ...

    or

    - land is too "karst" and home's original foundation is too badly conceived to keep

    house ....

    (please tell me why I can not educate myself for this job?) - its an REO :)
     
  6. Steve Owen

    Steve Owen Elite Member

    0
    Jan 16, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Missouri
    Sounds to me like you understand the problem pretty well. I would not say you couldn't educate yourself to be able to appraise it (and did not intend that). Only you know whether that would be the case, since it is not possible to post enough detail for anyone on the forum to make that call.

    But... before you start, you'd better understand the difference between appraising for a hypothetical situation and what the value definition is. (Hint: they are separate issues.)
     
  7. xm39hnu

    xm39hnu Senior Member

    0
    Jul 10, 2003
    Professional Status:
    General Public
    State:
    Florida
    David,
    I'd get a geologist's opinion on the probable progress of that sinkhole before attempting to value that land. I would also avoid that thing like a blind date. Imagine a domed football stadium with a tiny hole at the top. That tiny hole may be what you're looking at from the wrong side. Get too close to the edge at the wrong time and ....

    You need to know the extent and stability of the sinkhole in order to determine the probable life of the property. Only a professional geologist can do that with any hope of accuracy.
     
  8. Carnivore

    Carnivore Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    Remember, I am just thinking out loud here trying to work my way thru Davids problem.

    It would appear that HBU is the problem. Look at the site for its HBU and remember its as if vacant. The question, is it legally permitted/possible?

    I say the answer is no if you tried to apply for a SFR building permit for the current unstable site.

    If I look at this in its current use(as improved), I say we now have a problem of the structure & site being unsafe. Once again, the gov moves in and condemns the improvement as unsafe for human habitation.

    What we are left with is a parcel of real estate that can not be appraised per the Definition of Value, considering the Purpose, Intended Use and Intended User. We must remediate the problem or quantify the remediation to come up with the value defined by the client.

    Does this make any sense?
     
  9. Carnivore

    Carnivore Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    North Carolina
    David,

    I am not sure what you are saying here.

    It looks like you are parsing you words to say that land depreciates.

    Since we all know that land does not depreciate, just what are you trying to say.

    :p
     
  10. David S. Roberson

    David S. Roberson Senior Member
    Gold Supporting Member

    10
    Jan 16, 2002
    Professional Status:
    Certified Residential Appraiser
    State:
    Tennessee
    Abandoned junk yards? Toxic spills? Declaration of wetlands or sightings of endangered species in commercial areas? Adjacent situation of adverse economic factors (trailer parks, sewage plants, waste transfer facilities)? Development of subsidence?

    Maybe not physical, but certainly depreciation.
     
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