New condition property with damaged flooring "as is."

[George Hatch]

Btw - an frt is simply any appraisal performed for a loan subject to purview by a federally regulated institution (including the agencies).

Yeah, it is just an appraisal - like the GSE appraisals - except that most of them go as FRTs because they don't fit the GSE programs. For example, and I'm sure you know this, if this had been an FRT assignment the OP would have been required to provide the "as is" in addition to the "subject to" right from the outset. They're not accustomed to the "as is" because they're obviously not doing them on a regular basis. If they were doing them on a regular basis they wouldn't have needed to ask the question.

 

[Terrel L. Shields]

Fannie contracts with third party providers

Yes, but the CEO had no reason to lie. I didn't say they were employees of Fannie Mae. Capitol is owned by the same folks who own Arvest - the Waltons. They came in or sent in appraisers as a hit job and despite the efforts of the company they had to make to practical decision to not jeopardize the relationship with FNMA. The CEO said the only issue that was discussed was the value of a house that sold cheaper because 3 years earlier when the appraisal was originally done, that house was not in the same condition as the subject and the comps used.

 

[alebrewer]

except that most of them go as FRTs because they don't fit the GSE programs.

most of what? Most of appraisals? The GSE's garner a MUCH larger percentage of overall appraisals than do the other FFI's...

For example, and I'm sure you know this, if this had been an FRT assignment the OP would have been required to provide the "as is" in addition to the "subject to" right from the outset.

I did not know this? Are you saying that it is FFI policy that two values be submitted when there is minor deferred maintenance? I apologize for my ignorance, but I've just never heard that. Can you point me to the regs that state this mandate?

 

[alebrewer]

Yes, but the CEO had no reason to lie. I didn't say they were employees of Fannie Mae. Capitol is owned by the same folks who own Arvest - the Waltons. They came in or sent in appraisers as a hit job and despite the efforts of the company they had to make to practical decision to not jeopardize the relationship with FNMA. The CEO said the only issue that was discussed was the value of a house that sold cheaper because 3 years earlier when the appraisal was originally done, that house was not in the same condition as the subject and the comps used.

I really have absolutely no idea how to respond to this rambling, Terrel... not sure if there's a point in this or not. Gonna drop this one if it's ok with you?

 

[alebrewer]

A already had the tile you wanted.

This wasn't part of your original postulate.

it doesn't matter what the variable or its exact cost is.

I disagree - it does matter. The extent of the time and 'suffering' (for lack of a better word) to be expended on my part will play a significant role in how much I require the property to be discounted.

Just the buyer's cash flow alone should prompt you to go beyond a simple cost=value assumption.

That's a big negative ghost rider. It depends on the depth of the cash flow requirement. Think of it this way. If a property simply has a garage door opener that doesn't work, the CTC is negligible, and thus, the strain on the cash flow is negligible, meaning that the discount would be little more than the cost=value assumption.

the CTC really is only $3k or $5k or $25k

These are three completely different scenarios - well, maybe two, as there's not much difference between 3k and 5k - but a BIG difference between a $3k deferred maintenance and a $25k deferred maintenance. You, who speak of intimate knowledge of loans that deal with deferred maintenance, should know this. The $3k or $5k scenario would likely qualify for an escrow holdback, but most likely, the $25k scenario would not.

 

[andrew81]

Hi,

I completed a condo conversion recently. A row house in Washington, DC that was converted into four condos, and thoroughly renovated. The property is in similar condition to new construction, except for one thing. Tile flooring in two places was damaged and in the process of being replaced at the time of my inspection. I completed the report subject to the repair, and provided an estimated cost to cure. However, the client has come back and requested that the report be done as-is because the damaged flooring is not a health and safety concern. They suggest making a straight adjustment across the board in the sum of my estimated cost to cure. I believe that this would not be a supported adjustment. It presumes that cost is equivalent to value, which is not the case. The actual impact of marketing a property that has been thoroughly renovated and is in new condition, but has damaged flooring cannot be proven by the open market, because it would take extraordinary circumstances for anyone to attempt to market a property in good condition without repairing the damaged flooring. And thus, no such comparable properties exist to extract a supported adjustment.

How would you handle this request?

as is and a condition adjustment. act as a market participant and apply what a potential buyer would do.

what would a potential buyer say:
i would change the flooring anyway so no offering difference
i would offer less as a negotiation tactic, $500, $5000, cost to cure???
some other possible situation

the answer is in your market. do the buyers of similar properties replace the flooring anyway to meet their personal tastes? do the buyers of similar properties not worry about minor repairs and offer full asking? do the buyers of similar properties negotiate every minor detail to the $500 difference (carpeting, appliances, minor repairs...)?

whatever the answer is to any number of possible questions, it depends on how buyers and sellers negotiate in your market.

in my market in the lower priced homes (less than $80,000) buyers would likely offer anywhere from cost to 2x cost as these are buyers with the least amount of cash and cant afford to fix it. $100,000 to $175,000 they would likely use it to negotiate a flooring concession or offer less anywhere from $1 to cost to cure. over $175,000 they wouldn't care because they will do renovations anyway.

///edit
oh, need to add, this is from the perspective of a C4 or C3 home. i am not in an active C2 market.

 

[jay trotta]

Maybe I am speaking out of term to say others feel this way, but FNMA/FREDDY, more so that FHA or VA, has their own spin concerning compliance with USPAP. In effect, they prefer to dictate terms to TAF rather than visa versa. Noted back in 99 when we were putting 2 certifications in reports because Fannies was different from the one in USPAP. Interestingly, USPAP now makes it plain the certification does not have to be identical, so they basically caved to Fannie. Fannie Mae introduced such things as the MC form, the UAD codes, etc. That is "Fannieworld" which A - made reports a coded mess that no homeowner in their right mind would attempt to read. ...yet FNMA still insists on Cert 23 and borrowers "relying" upon our reports. Catch 22. How does it fit that we are supposed to write a plain language report that readers can understand, yet use a byzantine maze of codes and forms to express the report. From ordinary text to Q's and C's etc...reduces the fanniespeak form into a convoluted mess. When this all came about, I made the decision to quit doing secondary market, outside of FmHA and SBA backed farm loans. I felt that Fannieworld invites you attempt to interpret rules which are conflicted or at best, questionable. That's my vision of FNMA and the sort of Orwellian Fanniespeak where lies are truths and truths are lies.

Agreed 120%

 

[jay trotta]

I think you're the one who isn't following.

Let's write it out in long form. We've got a buyer who has the following choices which are otherwise identical:

Property A is in finished condition as of the effective date, and selling at $250k.
Property B needs $3k in flooring as of the effective date.

How much would you expect the buyer to pay for Property B when they can get the finished Property A for $250k?

Thinking like a Potential Buyer; $10,000 discount; $240,000 PP (just because I can't see what's under the damaged flooring, perhaps sub flooring repair, now it becomes a "Time/Cost and rip out & repair" item or items ??)

 

[DTB]

Property A is in finished condition as of the effective date, and selling at $250k.
Property B needs $3k in flooring as of the effective date.

How much would you expect the buyer to pay for Property B when they can get the finished Property A for $250k?

(b) If I were the buyer, I'd discount property B by the estimated cost to replace the flooring

Answer w/o real world real estate experience

Thinking like a Potential Buyer; $10,000 discount; $240,000 PP (just because I can't see what's under the damaged flooring, perhaps sub flooring repair, now it becomes a "Time/Cost and rip out & repair" item or items ??)

Answer with real world real estate experience.

My personal answer is 9K. I need $2 back for each $1 that I spend in that business.

 

[J Grant]

Hi,

I completed a condo conversion recently. A row house in Washington, DC that was converted into four condos, and thoroughly renovated. The property is in similar condition to new construction, except for one thing. Tile flooring in two places was damaged and in the process of being replaced at the time of my inspection. I completed the report subject to the repair, and provided an estimated cost to cure. However, the client has come back and requested that the report be done as-is because the damaged flooring is not a health and safety concern. They suggest making a straight adjustment across the board in the sum of my estimated cost to cure. I believe that this would not be a supported adjustment. It presumes that cost is equivalent to value, which is not the case. The actual impact of marketing a property that has been thoroughly renovated and is in new condition, but has damaged flooring cannot be proven by the open market, because it would take extraordinary circumstances for anyone to attempt to market a property in good condition without repairing the damaged flooring. And thus, no such comparable properties exist to extract a supported adjustment.

How would you handle this request?

I read a few posts, much ado about nothing. Assuming no damage to sub floor, ( just recommend an inspection ), replacing damaged tile in a few areas is low cost and the replacement/repairs are already underway. If the missing tiles are limited in area I would have commented they are being repaired and any measurable $ amount of impact on MV too difficult to extract. And then provide cost to cure. If cost to cure is a small amount, how would you extract that from a price, esp since the repairs are underway and there likely is an agreement buyer has with seller the repairs be completed?

An informed buyer with a signed agreement from a builder or seller that a repair will be completed would not then also expect a discount for that repair.