Cost To Cure, Be Careful Out There

[Michigan CG]

I was called to testify as an expert witness in a case involving new construction and the hearing was today.

There were many issues during the time the home was being built. A lot of the issues are cosmetic but also included windows that were not properly installed causing water to leak in and other things I would never expect to reach over $20,000.

The expert who testified before me dealt with renovations of homes and used Xactimate. His estimate was $80,000 and another person came up with $106,000. I was shocked at the figures. If asked for a cost to cure I would have refused as the list was very long but I never thought it would be anything close to that.

 

[J Grant]

I always provide a cost to cure as a range, not a point number, and I always state it is an estimate only and a contractor estimate may differ.

I never use cost to cure as the adjustment. Ever. I see appraisers do ing that and cringe. First of all, the adjustment on sales grid is tupposed to be market reaction, not straight cost. Second of all, if cost to
cure estimate is "wrong", then the adjustment based on cost to cure is equally wrong". If appraiser feels market reaction is equivalent to cost, then that is their judgement, of course above example shows the problems that might occur, sounds like unseen leaks from the windows with mitigation for whatever damage they caused is the reason for high $ rather than the window replacement itself?

 

[Mr Rex]

I "borrow" this verbiage from the REO addenda whenever providing a Cost to Cure:

The appraiser is not an expert in the field of building construction and actual costs may vary from those provided. Repair costs and opinions reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building contractor.

 

[Michigander]

MichiganCG, what was the effect on value (if that is what you were being asked to address)?

 

[ucbruin]

This is a great example why the cost approach is useless.

MCG, thanks for the post...

 

[J Grant]

I fail to see why this example of a court case about damages means the cost approach is useless....

Cost approach to value of entire dwelling and land is not the same as a cost to cure estimate for a specific defect/defects or completion . The post did not give details about the case (sounds like a borrower trying to recoup $ damages from a builder?),

The issue for appraisers is mis use of the cost to cure estimate, and one might argue the issue of clients asking for it ,, since appraisers are not contractors and work off observed condition only.

 

[ucbruin]

I fail to see why this example of a court case about damages means the cost approach is useless....

Cost approach to value of entire dwelling and land is not the same as a cost to cure estimate for a specific defect/defects or completion . The post did not give details about the case (sounds like a borrower trying to recoup $ damages from a builder?),

The issue for appraisers is mis use of the cost to cure estimate, and one might argue the issue of clients asking for it ,, since appraisers are not contractors and work off observed condition only.

I believe you answered your own question....

 

[Michigan CG]

MichiganCG, what was the effect on value (if that is what you were being asked to address)?

I was there to testify to the construction process and how there were multiple issues during the two years it took to build the house.

 

[Michigan CG]

This is a great example why the cost approach is useless.

Oh, no. I love the cost approach and it is very useful. I base many of my adjustments on the cost approach.

In this case the damages were many that I couldn't see and I wasn't given a list of all the damages.

 

[bnmappraisal]

I "borrow" this verbiage from the REO addenda whenever providing a Cost to Cure:

The appraiser is not an expert in the field of building construction and actual costs may vary from those provided. Repair costs and opinions reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building contractor.

I like this Mr Rex