Sales Comparison Grid & Cost to Cure

[TekJ42]

That's not my quote you're commenting on. That's Mark K's from post #92. Yet another misrepresentation. You're on a roll, keep it going. You and RCA can walk hand in hand into the sunset together. Who needs clients when you're smarter than everybody else?

Sorry - not sure why the forum equated your name with that reply. I generally ignore trolls - but can't help it when the software messes up a post. Will endeavor to leave you out of it in the future - for sure.

 

[Charles West]

The problem is trying to isolate the market reaction to a single component. I may have missed comments about the condition of the rest of the structure but if the roof is fully depreciated the level of renovation and normal upkeep of the rest of the structure may be subpar as well but not necessarily. Investors are generally looking for a 40% to 50% discount over typical well maintained comparable properties, and a 20% return after tax. You will spend hours trying to find suitable homes for comparison which to my mind is foolish but if you are anal that is the way. Value the subject as repaired, compare to REOs or otherwise lesser maintained properties, adjust for all other differences in condition then the remainder is your answer. Compare that answer to the cost to repair and the answer will probably be higher than the cost. If an investor/buyer is not appropriate for this situation, i.e., maybe demand from the typical buyer pool is overwhelming, and those buyers are willing to accept less than ideal condition just to get their foot in the door, then the cost to repair may exceed the appropriate discount.

 

[TekJ42]

Sorry - not sure why the forum equated your name with that reply. I generally ignore trolls - but can't help it when the software messes up a post. Will endeavor to leave you out of it in the future - for sure.

NVM - found it.

 

[RCA]

Agreed. But if a roof is fully depreciated and needs replaced any buyer will want to know the cost to cure/repair and this cost will be reflected in any purchase. No buyer is going to say...'I know the roof will cost $60K but my market reaction to this amount is only $30K'. (That reeks of the same concept that a 'market reaction' of sales concessions is something other than a $4$, but that's another running disagreement on the forum.) Now, they may say that the hassle factor of replacing the roof demands a premium and the cost may be more than the $60K (EI) but, overall, the cost is the basis for the adjustments.

Look at the other extreme, to understand what is being said. What buyer is going to say that putting a $60K room on a dilapidated house is worth $30K, let alone $60K? A $60K room on top of a house that is about to fall over in a strong wind is worth S-H-I-T. "Super-Adequacy" comes to mind.

 

[J Grant]

The key to undertaking adjustment correlation of market reaction to cost is who is the identified buyer for a subject house in X condition and needing X amount of work or completion -

Flippes/contractors want to double or triple what they spent in cost so it makes sense they want a steep discount on purchase. But they tend to buy problem child houses needing extensive rehab and often buy all cash.

The opposite end are fussy owner occupants willing to pay a premium for new or renovated. These folks often pa y2-3 x what it cost to repair or upgrade


The great mass of middle-of-the-road buyers who, depending on market conditions and the extent of the defect, will often take on a minor or moderate project and pay accordingly.

An informed buyer should have a rough idea what things cost. Most buyers would know for example, if they want a house with a pool it costs approx 40k to put in a pool of avg quality. Bargain hunters want to steal it at 20k for the pool and premium buyers might pay 60k plus to get a house with a pool and cost conscious buyers want to pay in the 40 k range for the pool amenity. Different houses and price points attract different buyers.

 

[alebrewer]

The goal of any Sales Comparison Analysis should be to have an adjusted sales range of $0. Anyone who is not familiar with that concept, or takes umbrage with that concept, really needs to take another SCA class.

 

[RCA]

...

The opposite end are fussy owner occupants willing to pay a premium for new or renovated. These folks often pa y2-3 x what it cost to repair or upgrade

...

You are way out in left-field. All studies on the profit from doing renovations and upgrades before sale are at complete odds to your 2-3x cost. No such thing. You are lucky to get 120% ROI, most upgrades will result in a loss. The average ROI is 70% - or a 30% loss.

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YOU almost NEVER get it right. 200-300% ROI. Oh yea. Some appraiser is off his rocker.

[ Now, in certain, need I say illegitimate, cases, REPAIRS and "upgrades" can provide a good ROI, especially if they cover up problems like dry rot, mold, or infestations. But, of course, you can't include such statistics in official statements of ROI. ]

 

[Zoe]

You still haven't answered my question. Do you use cost based adjustments in market based approaches?

Yes. Depreciated cost is fine. Fannie don't like it but she likes in REO and liquidation so yes is the answer. It gives you a strong support. Your looking at it from buyer's perspective on cost to cure. Plus entrepreneurial incentive.

 

[Zoe]

Easiest way would have said call me when roof is finished. I will schedule as soon as possible.

 

[Fernando]

Easiest way would have said call me when roof is finished. I will schedule as soon as possible.

Sometimes, never hear back the call and lose the appraisal fee.
Current business climate, appraisers want to do all the appraisals they can get even if messing around with cost to cure.