Cost to cure adjustment on the grid?

[residentialguy]

Leave your bathroom counts and corresponding adjustments as if it was completed. Add a cost to cure line at the bottom of the grid, then make an across-the-board downward adjustment.

Somehow I'm lost here. How are you doing a hypothetical on an as-is?

 

[Mejappz]

Yes

A C2C adjustment is just what it says... a COST to cure. I don't buy into the notion that we need to make some additional discount for imaginary actions of a buyer discounting it further...that's for major issues - usually incurable functional obsolescence. Anyone who says we need to discount something further will has to show me actual case studies where that happens for minor repairs aside the flimsiest of evidence. OTOH we don't need to be doing a "cost to cure" for tens of thousands of dollars. That is a job for a contractor's estimator. I would pretty much eschew any such request if more than $5000.

So itemize what needs done.

New floor, new fixtures, paint etc. Now get a cost book to help you and the best (imnsho) is the 2022 National Renovation and Insurance Repair Estimator. Download the program from the code in the book or I think you can download the whole smear from Craftsmanbooks, who publishes it. This is a typical printout. With it you have an estimate. You have a defensible SUPPORT for such an adjustment. It doesn't make it dead to nuts, it may be high or low and maybe that imaginary additional discount exists. But this is SUPPORT for your opinion instead of pulling a number out of the air.

View attachment 59244

I tried a free trial of this program and found it cumbersome to use. Maybe, I did not give it a fair shot. The regular cost manual is much easier to use but won't give you the C2C.

 

[Terrel L. Shields]

tried a free trial of this program and found it cumbersome to use.

It is not as intuitive as I wish it were. But a SF or assemblies method does not work since you need to parse the individual items that are defective. And you need to estimate the quantities. I used to have a contractor friend who would give me a rough estimate but the bust got him and he was offered a job at the regional airport and doesn't do contracting anymore.

 

[shrubberyvaluation]

Leave your bathroom counts and corresponding adjustments as if it was completed. Add a cost to cure line at the bottom of the grid, then make an across-the-board downward adjustment.

Sales comparison is not about cost, its about the market's reaction. Why would a cost to cure be put on the sales comparison grid?

 

[Mike Ault]

Sales comparison is not about cost, its about the market's reaction. Why would a cost to cure be put on the sales comparison grid?

What they MEANT to say was MARKET REACTION to the cost-to-cure must be REFLECTED in the grid. alebrewer is correct.

 

[sputnam]

There are several places you could put it. I'd probably consider it a condition adjustment.

 

[J Grant]

I have a lender who wants me to put a cost to cure adjustment on the grid because of a bathroom which is presently under renovation. I'm trying to figure out what the best way is to do this. Would I keep the bathroom in the room count and make the adjustment on the room count line or is there a better way? The appraisal is being done "as-is".

The problem here is you are letting a lender instruct you how to do an appraisal in a manner that affects value. They can ask for additional commentary on our appraisal, such as provide a cost to cure estimate on the addendum for the bathroom. But they are not supposed to, or rather we are not supposed to allow them to , dictate things in or out of the appraisal that affect value /results. See the below. FIREA comment that is put on Lending appraisals.

Now, is this a hill you want to die on with your client is another matter. But you should refuse the request and tell client you will provide a cost to cure in the addendum, but that you can not add things to appraisal that affect value. However, you also perhaps did not address any value impact of the partial finished bath, which you may need to do.

How much of the bath is not finished ? That can affect market reaction . The way I handle these things are , depending on extent of not finished, cost etc, is simply appraise it on the lower end of the value range because it adversely affects appeal, meaning some buyers simply will not purchase a house needing that kind of work, others might or might not expect a discount for it. In a very hot housing market, buyers may not seek a discount because they are just desperate to get the house. That is your job as an appraiser out in the market, and you can ask local RE agents for input, to determine the typical range of buyer reactions to it depending on market.

No employee, director, officer of agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery, or in any other manner.

If this statement appears on your appraisal, (usually on addendum, and you let the lender or AMC instruct to put cost to cure on grid and adjust for it, ( and correspondingly affect value ) you have violated the statement, ( the FIRREA cert).. This is where appraisers can get tripped up and inadvertently open themselves to problems if there is ever an issue with the file. Just saying.

 

[TMG]

I put the "Cost to Cure" adj at the bottom of the sales grid sometimes. If it's a large enough amount. Then I subtract that amount from every comp.

 

[J Grant]

I put the "Cost to Cure" adj at the bottom of the sales grid sometimes. If it's a large enough amount. Then I subtract that amount from every comp.

Then you made the estimate of cost to cure your opinion as the adjustment of market reaction.

If your C2C is $7000, what evidence/support is there, that the typically motivated buyer would offer exactly $7000 less in price, or seller accept exactly $7000 less in price ?

The problem is C2C can be a very precise, specific number ( plus we can not guarantee most contractors would even charge our estimate.
This relates back to another thread which explored estimates and opinions - with USPAP defining an appraisal as an opinion - and estimates such as costs can be part of an opinion or a basis of an opinion, but are not by themselves an opinion.

So if your estimate is $7000 and you subtract $7000 from each comp, then your opinion as an adjustment is $7000, a very precise number ( so many posts about how appraisers are not that good, not that precise - suddenly they are? To know that every buyer on each of the comps would have paid $7000 ( as the example ) more or less ... e

 

[CGinMN]

Whenever a client asks me to do something, I never confuse it as an order. I have never given them the power to do that. They don’t have keys to my office, or passwords to access my PC and signature.

It sounds like OP missed addressing the mid-renovation bath in their original report, and at the clients suggestion they are now exploring how to do that with a cost to cure.

A cost-based adjustment is a valid adjustment in situations like this. Costs are the results of market reactions. I don’t see how interviewing realtors or reconciling to the low end of the range is any more reliable than doing a cost analysis.