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Subject to, once repaired the condition will be improved thus wouldn't the value?

Discussion in 'General Appraisal Discussion' started by NORTON, Jun 21, 2011.

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  1. NORTON

    NORTON Senior Member

    0
    Oct 10, 2007
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Subject to, once repaired the condition will improve, does it need to be bracketed?

    Hadn't come across this situation before. Doing an FHA purchase on an REO property that was vandalized (AC unit, water heater, kitchen and bathroom fixtures, broken window etc..) with the overwhelming majority of repairs being required by FHA to meet MPR's. So as it stands now, the property is considered between fair to average minus but since the majority of repairs are required by FHA and the appraisal is "subject to" the required repairs, the property condition and market value will increase once repaired although the contract was written with the borrower getting money back for the AC unit not realizing FHA wants the repairs prior for this loan (not a 203K). The contract was written at a price point based on the home needing many repairs. In order to close it will be improved thus eliminating the majority of the damage so my opinion of value will be higher based on its repaired value. Has anybody else come across this type of situation before? Also, how imperative is it that the current condition is bracketed if it's getting repairs? I tried but couldn't find comparables of similar condition.
     
    Last edited: Jun 22, 2011
  2. AnonApprsr

    AnonApprsr Elite Member

    0
    Jan 21, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Massachusetts
    My brain actually hurts from reading that. Is that really only one sentence? I couldn't finish the sentence but it is always possible for repairs to not equal value. Perhaps being repaired is not the same thing as remodeling. If you repair a 50s kitchen it's still a 50s kitchen and the next buyer may STILL want to put in a new kitchen. FHA doesn't say it has to be "nice" or "smart," it just has to be marketable when repaired. I can see that happening, sure.
     
  3. Lloyd Bonafide

    Lloyd Bonafide Senior Member

    0
    Jan 15, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Not important - you are appraising subject to the repairs being done, so the current condiiton may not be relevant, (and need not be bracketed.)

    If the seller is going to pay for the A/C unit to be replaced, I'm sure they will be rewriting the contract. I wouldn't be concerned with the contract price, because you are appraising subject to a bunch of repairs.
     
  4. Randy G

    Randy G Junior Member

    1
    May 9, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    Appraised value is to be as if all the "subject to's" are completed and the property "meets minimum FHA HUD property standards" when completed. That's why you have "subject to's."

    The purchase contract and it's terms have nothing to do with the SOW in an FHA report, except that you report what's in it. If the sales price includes a new BMW, new A/C unit and a kickback for a trip to Hawaii the final reported value should still be the value of the subject property with conditions if any in order to meet minimum FHA HUD property standards.

    It amazes me that Realtors present offers on homes that do not qualify for FHA financing with their buyers wanting FHA financing. Waste of time.

    RG

    .
     
  5. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    155
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Yes, and in analyzing the sales contract, I would point out that it does not reflect the "as repaired" scenario being appraised. You should not let the contract influence your value in this case for sure.
     
  6. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Minimum repairs should bring the subject home back into alignment with the average. That's a neighborhood by neighborhood consideration. Should someone need repairs on a mcmansion, they can provide only minimal, but then an additional reduction based on reduced state of material quality compared to the comparables may be prudent.

    If a buyer offers on a property thinking it's fha ready, then it turns out not to be, they can work a 203k into the loan. The price of the unit is typically reduced dollar for dollar on repairs, so the seller loses the net off repair costs, but contract price remains the same. Buyer still borrows the same and finances the costs of repairs himself.

    Considering repairs ahead of time can make your task simpler. The reason being is the appraisal now becomes a hypothetical based on a future state which brackets area standards, ie your comps.

    When the contract is written based on current condition, you now need an as is and and repaired value. Remember that being an unbiased party means you don't advocate for any one party. Just tell it like it is, weather they got it right in the first place or not. Should the seller be fessing up the cost of repairs, they deserve to know. But should the buyer be adding cost to the loan for the repairs, the as repaired value is prudent. Should the buyer be incorporating cost of repairs to reduce the contracted price, they're writing at an as is value.

    Sneaky hobbits.

    Oh yes, everything is listed FHA these days.

    Sometimes the nature of available comps, prices and repairs, has a relationship to your approach with these issues.
     
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