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When do I recommend a cost to cure?

Discussion in 'Urgent - Help Needed' started by Tracy May, Mar 17, 2006.

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  1. Tracy May

    Tracy May New Member

    0
    Nov 2, 2005
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Hopefully this is the correct forum for this question, if not, someone please let me know.

    Like most appraisers, we inspect a variety of homes, that range from new to should be condemned. Mostly somewhere in the middle of this range, I find the quality of condition of the subject. I am trying to figure out the "best" way to account for things that do not seems "normal" to me such as siding missing, shingles missing, stained ceiling(HO says roof fixed), flooring tiles missing, no closets, drywall not complete, etc. Three considerations to approach are: 1) give a cost to cure in the report for everything no matter how small (I feel like a construction estimator) 2) mention the condition, identify with effective age and like comparables, no cost cure 3)mention condition, effective age and make adjustment in the subject grid, but no cost to cure in the report, or all three??? Any ideas, thoughts, comments welcome. Thank you!!!!
     
  2. Christine Marie

    Christine Marie Senior Member

    0
    Jan 6, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Mississippi
    ah, 3 posts......welcome Tracy :new_smile-l: ,, when you encounter something that needs to be fixed/repaired/replaced... you will need to provide a cost to cure. to the best of my knowledge, no {very few} lenders for a purchase will accept a cost to cure. of the multiple choice your question provided, i pick #1.
     
  3. Stephanie L. Dudnick

    Stephanie L. Dudnick New Member

    0
    Mar 17, 2006
    Professional Status:
    Licensed Appraiser
    State:
    California
    Hi Tracy,

    I Posted a response to your first thread...I've been told by instructor's in my area Southern California, that reflecting the smaller items in the effective age is sufficent..of course every situation is different. I have used this approach recently and it has worked out well. In my earlier response I stated that a lender is requesting a roof cert for a recent appraisal I completed, for a few missing tiles (no water damage at the interior) so it depends on the lender. In the past I have used cost to cure's and have had no issues. :)
     
  4. Tracy May

    Tracy May New Member

    0
    Nov 2, 2005
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Thanks for your reply! I have been talking with other appraisers on this issue, and have found a great deal of difference in opinion. A friend of mine who works for an instructor at the appraisal school, rarely gives cost to cures. She said they handle the condition by finding other comps in similiar condition and provide an adjustment in the subject grid. My supervisor wants us to mention every little problem, (sometimes it's like writing a book) and estimate an amount to have it repaired. This often kills the deal, and the lender goes elsewhere, to an appraiser who is not so thorough. I am and always want to be thorough, but if I can mention the problem, and provide an adjustment in the subject grid to account for the cost to cure without mentioning a cost to cure in the addendum, have I still produced an accurate report that would stand up to review? Also, does everything always have to perfect on the subject? Does the condition of the surrounding homes(neighborhood condition) if they all have problems(declining) make it "okay" for the condition of the subject w/o mentioning everything? Since the comparable sales will reflect similar conditions and value?
     
  5. Stephanie L. Dudnick

    Stephanie L. Dudnick New Member

    0
    Mar 17, 2006
    Professional Status:
    Licensed Appraiser
    State:
    California
    Hi Again,

    I also agree with your friend. If you can find other similar homes with similar defects you can further support why a cost to cure was not given. I just appraised a "fixer" per the MLS, though when I inspected it was all cosmetic,paint carpet, dated bathrooms, kitchen etc... All my comps with the exception of one were all in similar condition (I got lucky). So I did not feel that a cost to cure was necessary. I did however explain the issues and expanded on the comps similar condition levels.
     
  6. Christine Marie

    Christine Marie Senior Member

    0
    Jan 6, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Mississippi
    tracy, there was a similar thread 09/13/2005 called cost to cure, there you will find others input as well. the most important thing is to present the facts as you know to be true. harbor in the recess of your mind, this question always, What if another appraiser did a field review of my work product, would they [my peers] be caught off guard because i neglected to mention something..... i don't totally understand the question about the surrounding properties, because it's a little vague.. if the area is in decline, you would have already indicated that by checking the appropriate box as far as the market segment's stage in the gsdr pattern....:shrug:
     
  7. Richard Carlsen

    Richard Carlsen Elite Member

    0
    Jan 15, 2002
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    The only time I give a cost to cure is if the assignment specifies a minimum standard for the lending approval. In other words, if the lender says that the interior wall have to be free of kid marks and there is kid marks on the wall, then I note it and give a cost to cure. Otherwise, the report is made "as is" with the condition of the property considered in the "effective age" line and adjusted there for any differences.

    I'm there to gather data to form an opinion of value. If they want me to detail what is wrong with the house, the lender has to provide the minimum standards to which they want the property to be appraised to and I will do it giving the estimated cost to cure to bring it to that point. These reports are always done subject to because the value given in the report assumes that the items below standards for lending are cured.

    Oh yes ....... and these carry an extra fee.
     
  8. Tracy May

    Tracy May New Member

    0
    Nov 2, 2005
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Thank you once again for your replies! It seems, in this business, there is so much up for interpretation of the individual/professional. During my search for the "right way", I have stumbled upon a doc I pulled from an internet site called, "Appraisal Forms FAQs" dated 11-1-2005. Prepared by Mark T. Simpson Director of Property Standards, Single Family Credit, Fannie Mae. Let me reiterate questions 3 and 4.
    3. What is the appraiser's responsibility for reporting property condition?
    "The appraiser is responsible for considering all factors that have an impact on value in the development of his or her opinion of market value for the subject property improvements on our appraisal report forms. The appraiser must report the condition of the improvements in factual, specific terms. We believe that an accurate description of the physical condition of the subject property is a critical element in arriving at a supportable opinion of market value, as well as in the prudent underwriting of a mortgage loan."
    4. What is expected with regard to the appraiser's inspection of a property?
    “Fannie Mae's expectation of the appraiser's property inspection for an appraisal based on an interior and exterior inspection is a complete visual inspection of the accessible areas of the property. The appraiser is responsible for noting in his or her report any adverse conditions (such as, but not limited to, needed repairs; deterioration; the presence of hazardous wastes, toxic substances, or adverse environmental conditions; etc.) that were apparent during the inspection of the property or that he or she became aware of during the research involved in performing the appraisal.
    The appraiser is expected to consider and describe the overall quality and condition of the property and identify items that require immediate repair as well as items where maintenance may have been deferred, which may or may not require immediate repair. On the other hand, an appraiser is not responsible for hidden or unapparent conditions. In addition, we do not consider the appraiser to be an expert in all fields, such as environmental hazards. In situations where an adverse property condition may be observed by the appraiser but the appraiser may not be qualified to decide whether that condition requires immediate repair ( such as the presence of mold, an active roof leak, settlement in the foundation, etc.), the property must be appraised subject to an inspection by a qualified professional. In such cases, the lender may need to ask the appraiser to update his or her appraisal based on the results on the inspection, in which case the appraiser would incorporate the results of the inspection and measure the impact, if any, on his or her final opinion of market value.”
    I know that USPAP is our "law" as appraisers. It is also my understanding that the governing bodies that generate the rules and standards of USPAP, kind of bend over backwards to take direction from Fannie and Freddie, since it’s since a large part of the business.
    After reviewing my USPAP manual, the only pertinent info I could locate on this specific subject was Advisory Opinion 5 Assistance in the Preparation of the Appraisal, under Responsibility of Principal and Appraisers and Competence of Assistants, paragraph 3, sentence 3, It states; "In contrast, in the context of real property appraisal, an assistant who recently entered the appraisal field but who has previous experience as a builder or real estate salesperson may possess the knowledge and experience to adequately identify building materials, items of deferred maintenance, and forms of obsolescence. In summary, from your responses, Fannie, and USPAP, it sounds like an appraiser needs to identify: 1) differed maintenance, which in my mind would be; peeling paint, worn carpet, stained ceiling, missing siding (if no leak)?, etc. 2) immediate repair to prevent deterioration of subject; leaking roof, no siding if moisture is entering interior, of course contamination, toxic, some molds 3) obsolescence, which would be no closets in bedrooms, etc. In my opinion, I should definitely give a cost to cure for #2 and #3, and for #1 it could depend on the severity? A little long winded, sorry, just trying to figure this out for appraisal sake.
     
  9. Christine Marie

    Christine Marie Senior Member

    0
    Jan 6, 2003
    Professional Status:
    Certified Residential Appraiser
    State:
    Mississippi
    'In my opinion, I should definitely give a cost to cure for #2 and #3, and for #1 it could depend on the severity?' yes, you are correct...

    In regards to #1, i would read handbook 4150.2, and if the items you mentioned affect "liveablilty" as outlined in the above referenced handbook, mention them too, side point: fha has relaxed many of the 'rules', however, using the above as a general reference is probably still the right thing to do.

    :new_smile-l: P. S., all of my reports have the following statement in the cost approach, [provided they are under the maximium allowable fha loan amount].
    SUBJECT PROPERTY CONFORMS TO APPLICABLE MINIMUM HUD/VA STANDARDS AS SET FORTH IN HANDBOOK 4150.2 just another cya...
     
  10. Tracy May

    Tracy May New Member

    0
    Nov 2, 2005
    Professional Status:
    Licensed Appraiser
    State:
    Michigan
    Thanks for the info, Christine. Forgive my ignorance, but I don't know about this handbook you speak of. All I have is my USPAP and my Michigan law book, and a handful of publications and docs from the internet. How do I locate this handbook?

    And, not to beat a dead horse, but, example: My subject was built in the 50's, totally remodeled inside, exterior has original wood siding, and paint is noticeably peeling. No deterioration exists from peeling paint at the time of inspection, however in time it could. It sounds like there are some appraisers who would not mention the peeling paint, some who would mention it w/no cost to cure, and some would mention the peeling paint and would give a cost to cure. Then there are appraisers who would only mention if required by the lender. To me, I guess I probably feel best about mentioning peeling paint and calling it deferred maintenance but since it does not affect the livability it does not require a cost to cure.
     
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