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Old 11-10-2009, 01:00 PM
PhysicalDepreciation PhysicalDepreciation is offline
 
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Default Cost to cure

Can someone explain to me a situation where the estimated cost to cure figure would not necessarily reflect the same exact amount when making the adjustments in the sales comparison grid. Assuming that the appraisal is to be done is "as is".
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Old 11-10-2009, 01:07 PM
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Mr Rex Mr Rex is online now
 
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I think it hardly ever is the same amount. The SCA is supposed to reflect the market reaction to a particular attribute or deficiency. Cost to cure is based on actual costs, and as we all know cost does not equal value. For instance, a hypothetical house needs interior painting. Painting CTC is $2350, market reaction might be $5k etc.
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Old 11-10-2009, 01:09 PM
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Cost does not equal value. The cost to cure may have some elements of incurable obsolescence.

Quote:
Incurable Physical Deterioration
An element of depreciation; a defect caused by physical deterioration that cannot be practically or economically corrected.
Quote:
Incurable Functional Obsolescence
An element of depreciation; a defect caused by a deficiency or superadequacy in the structure, materials, or design, which cannot be practically or economically corrected.
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Old 11-10-2009, 01:09 PM
PhysicalDepreciation PhysicalDepreciation is offline
 
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Thanks you very much. Just argued with an underwriter for about 20min beacuse they wanted me to put my cost to cure estimate figure as the adjustment figure in the grid. After researching the market the best I could, I used a figure I thought was more accurate(it was a number less than the cost to cure).
  #5  
Old 11-10-2009, 01:11 PM
PhysicalDepreciation PhysicalDepreciation is offline
 
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Quote:
Originally Posted by Timothy Evans View Post
Cost does not equal value. The cost to cure may have some elements of incurable obsolescence.

I kept hammering this point in, but to no avail. Apparently I wasn't being consistent and it didn't make any sense that the cost to cure wasn't simply subtracted from all my comps. Have to run now, but thanks for the quick replies.
  #6  
Old 11-10-2009, 01:14 PM
Ted Martin Ted Martin is offline
 
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I've had the same argument, sometimes I get paid sometimes not, but I do have the satisfaction of being right.
  #7  
Old 11-10-2009, 01:19 PM
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jlabauve jlabauve is offline
 
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Many, many times the cost to cure is not equal to the market reaction to the insuffiency in the property.

The way I explain it to non-appraisers is the following scenario. You are interested in purchasing a car. The dealer has two exact cars on the lot - same number of miles - same condition - same model. However, in one model the front and rear seats have been removed, as well as the steering wheel. The cost of the missing items and the cost to install them are $3000. If the vehicle with none of the parts missing is priced at $12,000, are you going to pay $9,000 ($12,000 - $3,000) for the one with the seats missing? The answer is usually "NO". The knowledgeable buyer would want some sort of a discount for the hassle factor and the length of time that he can't use the vehicle while the repairs are being made.

Now on to real estate. I once appraised a property that a carpenter was building himself. After framing it up and putting in some (not all) plumbing and electrical, he moved his family in. Bare concrete floors, only a couple of rooms sheetrocked, none floated/taped or painted. One toilet, sink and tub installed. They lived there, or actually camped out there, while he continued to work on the property. After a couple of years, the wife is divorcing him. Go figure. What will the knowledgeable buyer pay for this property? Is it the completed value minus the cost to complete? What do you think?

I interviewed investors regarding this type of property, and came to a conclusion of value. Needless to say, the adjustment was not the cost to cure, but considerably larger.
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Old 11-10-2009, 01:30 PM
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Steven J,
Can you explain why a brand new car when it rolls off the dealer's lot is
worth 15% less? The car has almost exactly the same amount of utility
on either side of the sidewalk.

There is always going to be a difference between actual cost (including the
effort made by the person hiring, supervising, and paying for the work) and
the market's conception of its value to the house.
  #9  
Old 11-10-2009, 06:57 PM
PhysicalDepreciation PhysicalDepreciation is offline
 
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Preach on my fellow appraisers....I'm in 110% agreement with all of you. It's just agravating when trying to explain it to someone who refuses to listen to you. Oh well, atleast I'm not losing my mind. I've done tons of cost to cures in the past and I've never had a client argue this with me until today.
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