Unadjusted values don't bracket the subject's value

[Zephyr999]

Yes, that's what I mean. No one's going to take on a partially completed project without some sort of discount. Zzagamazz needs to find out from the contractor the % of the construction that's not complete. As opposed to a guess.

I disagree...the cost approach provides the details for the appraiser to estimate the % finished and derive an adjustment.

The contractor is owed money and likely not going to play nice to help the appraiser.

 

[ZZGAMAZZ]

MV is what does it sell for, not what it costs or what the loss is.

If a house is half finished or 1/4 finished all you need is a rough idea , you don't have to be accurate to the dollar what it costs to complete ( every estimate is different btw in real life from contractors)
A partly finished house appeals typically to investors and property flippers, and whether it is a part-finished new house or an old house needing upgrades and repair the project is similar in their eyes, buy it low, put in the least $ they can to flip it and sell it for a higher price of X $. Some flippers do a really good job and just a cosmetic fix. A person buying an unfinished home takes on more of a project wrt expertise and permits than just repairing an existing home. But again, it is not their cost that is the issue, though we should have a rough idea of it, it is what a part-finished home would sell for considering the cost to cure and time to hold it etc

Your overly legal for no reason warning to RE agents scared every one of them off. It wa overkill. Asking for their opinion in a survey did not expose them to liability esp since you do not have to disclose their names in the appraisal.

My premise was

--first to determine the market value of the SFR as if the project was completed (with a caveat that the project included more than 3000 sf of new living area to total 7300 sf, as well as the comprehensive renovation of the existing 4000 sf SFR, which would result in a GLA about 2000 sf above the neighborhood sandard, and 800 sf more than any other SFR, with corresponding superadequacy factored in);

Next, to determine the cost to complete the project, based upon (original quote + anticipated over-runs + misc) - percentage of project unfinished;

Next, to determine market reaction to partial completion, not realizing that only two similar SFR's had been marketed throughout a large residential area about 15 miles, both of which are actively listed at present with exposure 4X - 5X greater than typical exposure;

--I am still not very comfortable with the idea of personally determining the percentage of competion/remaining because the renovation/expansion project estimate was more than $1.5M, so an minor error of judgement on my part, regardless of any EA's, could affect the OV by $250K or more.
--I quoted a fee of much less than 50% of what it should be, but I'm not as concerned with revenue as I should be--although the COD still hasn't been paid, although I often advise BK clients to pay when they can do so, in order to facilitate the client's BK process, as my way to support the legal counsel (only losing $200 from the revenue from 3 dozen BK jobs).
--I wasted a week communicating with the owner's partner, later to realize that although he met me at the property, he wasn't designated as a contact person;
--I didn't realize that market info of similar construction projects was so sparse, although I also didn't also think about fixers, etc., which is next;
--I didn't realize that the builder wouldn't be helpful, although his reluctance in retrospect should have been obvious, specially b/c he immed realized that the apprisal probably was for a BK.
--Both the AF and my orig app mentor who also is a very successful broker provided similar cost/construction advice yesterday.

...and this morning's assignment is a SFR on a lot more than 2X larger than anything with 4 miles in a residential neighborhood--because the lot is located on a legal zoning "island" that affects only one block, within a neighborhood of typical regisdential lots--but the lot is 50% sloping so the lot adjustment will be factored by the lot utility adjustment. This could be an interesting career that should pay a heck of alot more than it does.

 

[pjkeys]

How do you say the subject was a pos and I couldnt find other pos comps so my comps which are great adjust down but are bracketed by the adjusted values so who cares.

You could say that properties sold in the area are typically sold in marketable condition and there are no comps available in the subject's condition. You could then make adjustments for condition based upon contractors' provided estimates to bring the subject to marketable condition or based upon your own estimates and provide the total estimate in the cost approach and apply that adjustment in the sales comparison approach under condition. Contractors estimates are preferable as they provide support. Bracketing is a concept only required in FHA appraisals.

 

[Terrel L. Shields]

the cost approach provides the details for the appraiser to estimate the % finished and derive an adjustment.

Yes and GH provided a typical breakdown of cost of each system. This is the basis of an assemblies method of appraising by cost. Since I used to inspect construction in a different job years ago, I have a pretty good idea of the various systems and how they are put together.

One element not mentioned I believe is this. During the 2009-2012 period, REOs were everywhere and cash was scarce. No one wanted to let go of it. Therefore, REOs flooded the market and were cheap... a sort of artificial crash within a crash. Today, REOs here are fairly scarce... so far. And as a result the flippers and repair and flip construction companies are paying a premium for an REO...So it is the number of available properties that are distressed - REO, short sale, distressed seller, maybe even estates- that has the greatest impact upon any "discount" above the actual cost to cure the issues. Scarcity issue.

 

[George Hatch]

The typical buyer for a property in this "as is" will not be an owner-user. It will be a contractor or investor; so that's the perspective the appraiser is going to want to identify and emulate in their analysis. A contractor would estimate the cost of completion. Even if a contractor handed an appraiser a bid the appraiser would still need to develop their own *opinion* as to the cost to complete, even if that opinion is limited to analyzing/concluding that those costs looked reasonable to them.

And as we have repeatedly said, the discount from the "as is" will be far in excess of the hard costs to complete. So much so that we've seen incomplete projects sell for land value, or equal to a lot that has been scraped down to the previous foundation. There are burned out parcels in various areas of Southern Calif that were burned out in various wildfires and which demonstrate this. There's no reason for an appraiser in this region to say they have no choice but to proceed on the PFA basis, because that's simply untrue.

No investor is going to take on this project and all it's known/unknown risks without the expectation of a significant profit/contingency factor, above and beyond the costs to complete. If it costs $100k to finish then it wouldn't be uncommon for an investor or contractor to expect a $200k discount from the "as complete" project. And maybe a higher discount than that.

And then you add in the atypical construction method and what happens when THOSE components get exposed to the elements for 6 or 12 months and that complicates the problem significantly.

 

[J Grant]

Appraisers also need to remember that market exposure, the DOM on MLS, and offered estimate is a key component of the market value opinion.

Look to see how long it takes problem child properties to investors in your area on the MLS. If normal, move-in ready houses are selling in 15-30 days, we might (for example ) see problem child and repair issue properties selling in 4 months (or not, whatever the time frame is). The pool for investor purchases, particularly for a more complex build issue like this can be far smaller than for owner-occupant purchases. A big repair or mold issue or part-finished house often can not get financed, which means only those with cash step up to buy, which limits the buyer pool and impacts the price

Of course, at a dirt cheap price, it would sell fast to an investor, but is dirt cheap the MV price...? It would sell in 10 days if very cheap, 8 months at a higher price, and in 3-4 months in a mid-range = so price according to your estimate of market exposure.

 

[Terrel L. Shields]

Sometimes, sales are delayed by factors other than demand. Often it is a lien or other title issue, or like sales involving tribal lands (in OK I run into this occasionally) they get approval from the BIA first. But flippers here were buying homes REOs when available but now with so few on the market, to keep crews busy they are negotiating with estates and owners in a far tighter buying market. They are pretty savvy knowing what they will sell for. One such flipper told me that once finished he sits it on the market only 30 days. No buyers, then he rents it out often to rent-own, and after the renters may timely payments for 6 months and help their credit scores, they often can execute the purchase.

 

[ZZGAMAZZ]

The typical buyer for a property in this "as is" will not be an owner-user. It will be a contractor or investor; so that's the perspective the appraiser is going to want to identify and emulate in their analysis. A contractor would estimate the cost of completion. Even if a contractor handed an appraiser a bid the appraiser would still need to develop their own *opinion* as to the cost to complete, even if that opinion is limited to analyzing/concluding that those costs looked reasonable to them.

And as we have repeatedly said, the discount from the "as is" will be far in excess of the hard costs to complete. So much so that we've seen incomplete projects sell for land value, or equal to a lot that has been scraped down to the previous foundation. There are burned out parcels in various areas of Southern Calif that were burned out in various wildfires and which demonstrate this. There's no reason for an appraiser in this region to say they have no choice but to proceed on the PFA basis, because that's simply untrue.

No investor is going to take on this project and all it's known/unknown risks without the expectation of a significant profit/contingency factor, above and beyond the costs to complete. If it costs $100k to finish then it wouldn't be uncommon for an investor or contractor to expect a $200k discount from the "as complete" project. And maybe a higher discount than that.

And then you add in the atypical construction method and what happens when THOSE components get exposed to the elements for 6 or 12 months and that complicates the problem significantly.

I might get blasted for this comment, however: all AF responses seem to bode favorably for the client who presumably is seeking to strip the lien(s) on the property--although it is the inherent reason for the appraisal but not the "Intended Use" of the assignment, per se. [Being aware of the "real" reasons that assignments are ordered doesn't affect the appraiser's objectivity, or else few of us would ever be be declared as un-biased.]

 

[ZZGAMAZZ]

I might get blasted for this comment, however: all AF responses seem to bode favorably for the client who presumably is seeking to strip the lien(s) on the property--although it is the inherent reason for the appraisal but not the "Intended Use" of the assignment, per se. [Being aware of the "real" reasons that assignments are ordered doesn't affect the appraiser's objectivity, or else few of us would ever be be declared as un-biased.]

BTW, speaking of "underlying" factors, where is Nephew Glenn ?????????????????

 

[Surf Cat]

You should probably start your own thread Zag.....you hijacked this one....