Garage is currently being converted to an ADU

[Fernando]

This usually takes a lot of extra time to research, looking through countless photos, speaking with agents, etc

Last time I remembered unfinished work in a house was during the Great Recession. Around here, I can't recall homes with unfinished garage sold.
Whatever you do, you better have good support. You will have critics pointing out your reasoning whatever you do.
This is an appraisal I would not do.

 

[Fernando]

This is another avenue to research
Again ... it's not going to be a quick/easy "adjustment" to figure out
Appraiser needs to do his/her due diligence

In a down market, contractors let go their properties because they foresee they can't sell the home at its current condition unless more money and time are spent.
During Great Recession, I saw many properties with incomplete remodeling taken back by the bank.
If your market continues to go down, that unfinished garage home will decrease even more because who wants to buy a headache home instead of a remodeled home with no problems.
I consider the future problems and market downtrend when I do my appraisals.

 

[Terrel L. Shields]

So what? That can happen on any property.

War story time. A fellow I know signed a contract to purchase a tract to build chicken houses on. Too antsy to wait for the bank to process his loan he immediately sent a dozer to start constructing the building pads... Banker goes to inspect the place (pre-licensing) and finds the dozer working. Cancels the loan. Won't touch it. The dozer op has a clear prior right to lien. The bank is not going to allow themselves be to 2nd lien holder. Another back up buyer ends up with the property, doesn't want the CHs where this guy was building them so those leveled humps are still visible today while 2 chicken houses are built further off the road.

A couple I know started clearing the grown up fence line on a property they made an offer on and got a quarter mile of it cleaned out when they found the property was not going to appraise out. They had to walk away after working a week clearing brush. Ask me how I know...

If this house was placed on the market today, s, how will the typically motivated borrower see this? As a garage that is now half finished and needs to be restored to full garage utility? As a conversion, they need to finish to make it an ADU or an enlarged house sf room?

C2C is considered adequate adjustment to value. Since it is nigh impossible to find a house with ADU partially constructed to sell, it is also impossible to calculate, estimate, or even make a wild***ed guess as to the impact. And if you were to find a single sale, 1 sale is poor support for such an adjustment. So a cost to cure sans any further adjustment is far more defensible than making a PFA adjustment. You cannot prove a negative as they say...and without some minimum burden of proof, and without a comp sold with an partially built ADU, you have no such evidence.

I saw many properties with incomplete remodeling taken back by the bank.

Me, too. Even did weekly inspections after the bank paid a contractor to finish it. The contractor was so pleased with the job, he bought it himself. So what was the discount? The bank came out with their investment and the builder got a nice house he built himself... But I have never seen a house sell with a partially remodeled garage, or unfinished ADU.

 

[Surf Cat]

In a down market, contractors let go their properties because they foresee they can't sell the home at its current condition unless more money and time are spent.
During Great Recession, I saw many properties with incomplete remodeling taken back by the bank.
If your market continues to go down, that unfinished garage home will decrease even more because who wants to buy a headache home instead of a remodeled home with no problems.
I consider the future problems and market downtrend when I do my appraisals.

Per the op, the main dwelling is a cream puff....just remodeled. There would be lots of Market participants. The borrowers have all the paperwork and permits.....bird in hand.

I thought you were a savvy investor Fernando. You wouldn't take this on?

 

[Fernando]

War story time. A fellow I know signed a contract to purchase a tract to build chicken houses on. Too antsy to wait for the bank to process his loan he immediately sent a dozer to start constructing the building pads... Banker goes to inspect the place (pre-licensing) and finds the dozer working. Cancels the loan. Won't touch it. The dozer op has a clear prior right to lien. The bank is not going to allow themselves be to 2nd lien holder. Another back up buyer ends up with the property, doesn't want the CHs where this guy was building them so those leveled humps are still visible today while 2 chicken houses are built further off the road.

A couple I know started clearing the grown up fence line on a property they made an offer on and got a quarter mile of it cleaned out when they found the property was not going to appraise out. They had to walk away after working a week clearing brush. Ask me how I know...

C2C is considered adequate adjustment to value. Since it is nigh impossible to find a house with ADU partially constructed to sell, it is also impossible to calculate, estimate, or even make a wild***ed guess as to the impact. And if you were to find a single sale, 1 sale is poor support for such an adjustment. So a cost to cure sans any further adjustment is far more defensible than making a PFA adjustment. You cannot prove a negative as they say...and without some minimum burden of proof, and without a comp sold with an partially built ADU, you have no such evidence.

Me, too. Even did weekly inspections after the bank paid a contractor to finish it. The contractor was so pleased with the job, he bought it himself. So what was the discount? The bank came out with their investment and the builder got a nice house he built himself... But I have never seen a house sell with a partially remodeled garage, or unfinished ADU.

That's my point. There are few, if any, partially remodeled garage or unfinished ADU sold.
And some here says look at the market. There ain't no market data.
Whatever you do, you will get pushback for your appraisal. Be aware when something goes wrong.

 

[Fernando]

Per the op, the main dwelling is a cream puff....just remodeled. There would be lots of Market participants. The borrowers have all the paperwork and permits.....bird in hand.

I thought you were a savvy investor Fernando. You wouldn't take this on?

I would but expect a discount. Otherwise in this downtown market, there are other turnkey properties to consider.
Why didn't the owner just complete the half as* unfinished garage? Would have made the appraiser's job much easier and value more.

 

[Terrel L. Shields]

Why didn't the owner just complete the half as* unfinished garage?

They probably needed the loan to finish the garage. And the lender is probably an in-house lender who has an abundance of collateral in the house, so isn't worried about the future value. And the FDIC wants an "as is" value...always.

 

[Surf Cat]

I would but expect a discount. Otherwise in this downtown market, there are other turnkey properties to consider.
Why didn't the owner just complete the half as* unfinished garage? Would have made the appraiser's job much easier and value more.

Of course.....since the ADU is approximately 10% complete, say 90% of the conversion cost plus an additional entrepreneurial incentive. Would that work for you?

The borrower just needs more cash on hand. It's not half a** as the borrower has all the required permits.

The Adu is not some DIY on the down low.... it's being done by a contractor.

Identifying and solving the appraisal problem "is" the Appraiser's job. You don't think the borrower is going to have an appraisal done after the Adu is finished? Of course they are.

 

[Fernando]

Of course.....since the ADU is approximately 10% complete, say 90% of the conversion cost plus an additional entrepreneurial incentive. Would that work for you?

The borrower just needs more cash on hand. It's not half a** as the borrower has all the required permits.

The Adu is not some DIY on the down low.... it's being done by a contractor.

Identifying and solving the appraisal problem "is" the Appraiser's job. You don't think the borrower is going to have an appraisal done after the Adu is finished? Of course they are.

Then just finished the construction.
If I was a conventional lender, why accept such a situation?
If this is hard money, I understand since appraisal will have less oversight.

 

[J Grant]

Then just finished the construction.
If I was a conventional lender, why accept such a situation?
If this is hard money, I understand since appraisal will have less oversight.

The appraiser does not get to choose. If a lender will lend on it AS IS, and wants the appraisal done AS IS, then the appraisal is done AS IS.