Sales Comparison Grid & Cost to Cure

[Terrel L. Shields]

Since that can be off 50% or greater wrong than what the market pays or does not pay in a sale of the property, how can you call that accurate ?

So you prefer to simply guess? I mean paired sales are a joke unless you have a number of them. You don't believe in Multi-linear regression. So PFA works for you? Further, experience has taught me that there is a heck of a lot of difference in the discount for major repairs that might take weeks or months than a 2 day roofing job. The cost is likely far closer than you will get hunting that unicorn "matched pairs" - identical homes - one with a new roof being installed that sold or one that needs that roof. How many homes have escrowed the cost to replace a roof or other item as a fixed COST that is about the actual COST to make the repair? I bet far more than pulling a number out your heinie.

 

[George Hatch]

You can what the acquisition price was for a beater and what its subsequent resale price was in the flip, 4 months later. It doesn't take that much guesswork to see the delta between the work completed vs the value it added.

BTW, that's another highly useful application for looking at sales histories for your subject and comps as well as the non-comps that you came across but didn't use.

The foot bone is connected to the knee bone, the knee bone is connected to the hip bone......

 

[J Grant]

The case in the OP is about a physical deficiency which will have a cost to cure. You cannot get to a discount factor from "as is" without first quantifying that cost, and then proceeding to gauge the market's reaction to that cost whether that reaction amounts to a win, a loss or a draw.

The discount for a partially completed roof will probably be different than the discount for "needs new paint", and the reason that discount will be different is primarily because of the difference in costs. The estimated cost isn't the difference, but it is a component of the difference.

That is true, but the discount is still what the market pays and it could be the same as, more than, or less than a cost.

There are many complex factors that make it so, including the fact that when a buyer purchases a home needing defects, the buyer will have to pay cash, out of pocket to fix the defect ( typically). Coming up with their own cash feels more painful to a buyer ( and some don't have it ), vs paying above the cost and using financing to get a house in better condition, there is also the inconvenience and time factor for a buyer.

There also is the fact that in a hot market/very sought-after area, houses are hard ot come by and a buyer will forgive repairs and not expect a discount for them. There are many reasons why it is the contributory value of the repair rather than just th cost of the repair ( though they can be the same at times)

 

[J Grant]

So you prefer to simply guess? I mean paired sales are a joke unless you have a number of them. You don't believe in Multi-linear regression. So PFA works for you? Further, experience has taught me that there is a heck of a lot of difference in the discount for major repairs that might take weeks or months than a 2 day roofing job. The cost is likely far closer than you will get hunting that unicorn "matched pairs" - identical homes - one with a new roof being installed that sold or one that needs that roof. How many homes have escrowed the cost to replace a roof or other item as a fixed COST that is about the actual COST to make the repair? I bet far more than pulling a number out your heinie.

Why do you inist on making such ignorant assumptions?

No, appraisers don't guess. They understand how to analyze the market to find the contributory value.

 

[Terrel L. Shields]

they paid for any recent improvements that I notice.

And I bet they didn't discount them 50% either. Lots of contracts state the seller will pay x to effect a new carpet, new appliance, or roof. But what you won't find is someone discounting an on-going repair by half just to close on the date the repair was being made. People either wait or they do it themselves based upon the cost. Just because cost does not equal value does not mean costs are not relevant and cost is not totally divorced from the price. It is integral to the decision and what it is worth to the owner. And a new roof is worth a lot in lieu of a leak that stains the ceiling.

Are appraisers that good in estimating cost to cure?

If they use a cost book, they should be. Of course, most appraisers pull these costs from the air. They have zero idea and they've never owned a construction and renovation estimating book. Secondly, in this case, what does it matter? The owner knows the cost. So do we add some magical discount for the roof being under repair? Why not do the smart thing and call the lender FIRST and ask if they want to wait.

It's the same with shop buildings and pools. They are always $5,000, $10,000, or rarely anymore - no matter is a 10,000 SF hay barn, a 1,200 SF shed, or a $80,000 horse barn with oak boards, a tack room, a wash room, etc. They have no idea what these buildings cost or how to figure out what they cost.... and a 36 x 18 pool is the same as a 9 x 18 pool in their mind.

 

[Terrel L. Shields]

No, appraisers don't guess.

Really?

 

[J Grant]

Really?

Really. The applied adjustments need to make sense and narrow the adjusted range of the comps and wild guesses do not do that.

 

[Terrel L. Shields]

Really. The applied adjustments need to make sense and narrow the adjusted range of the comps and wild guesses do not do that.

You are going to sit there with a straight face and say that appraisers don't make unsupported guesses about an adjustment or in the cost approach (half the appraisers don't even own a cost book) they might put down $10,000 or $15,000 or whatever as the "site improvements" "as is." They cannot even tell you what the site improvements are. Utilities? driveway. Sidewalk. Fencing. septic and well if in the country. Review a few reports. They guess at a lot of things. They might be in the ballpark and maybe not. On unique items - pools and outbuildings - the typical report I see, particularly from a residential appraiser, is a pure unadulterated guess...maybe an educated guess but still a guess. They cannot show you extractions of comparable outbuildings or pools. They cannot begin to even explain how they arrived at half their adjustments. I saw one back a while that made 14 adjustments on the 3 comps. There was vague references to 'held in file' or 'paired sales' without a single exhibit of how they got there from here. And if you read the sanctions from boards that is a huge issue. Appraisers making blind stabs at an adjustment without any support whatsoever. And some end before the board and many escape scrutiny for decades.







I guarantee that this last one 12, was pulled out their arse. They had zero support for the contributory value of the shop.

 

[J Grant]

So you prefer to simply guess? I mean paired sales are a joke unless you have a number of them. You don't believe in Multi-linear regression. So PFA works for you? Further, experience has taught me that there is a heck of a lot of difference in the discount for major repairs that might take weeks or months than a 2 day roofing job. The cost is likely far closer than you will get hunting that unicorn "matched pairs" - identical homes - one with a new roof being installed that sold or one that needs that roof. How many homes have escrowed the cost to replace a roof or other item as a fixed COST that is about the actual COST to make the repair? I bet far more than pulling a number out your heinie.

I don't use cost to cure for major 4 as an adjustment.
As far as matched pairs, I use other poor condition sales so no adjustment is needed !!!! And there are usually ample paired sale to extract an adjustment if needed ( does not need ot be matched pairs )
Using similar condition comps that do not need an adjustment is because the typically motivated buyer for a house needing major repair is not a n owner occupant buyer looking for a discount , the buyer ofa poor condition home is an all cash flipper or investor and they are looking for cost plus a heft profit on top - or whatever profit the market will bear

Identifying the kind of buyer for a house in whatever condition it is in is key to this, not just estimating a cost

Your example of escrow does not apply, that is a simple release of funds by a lender to pay for a repair.

And yes, sometimes the cost of the repair is also the market reaction, but not all the time and not typically for major reepairs

 

[J Grant]

You are going to sit there with a straight face and say that appraisers don't make unsupported guesses about an adjustment or in the cost approach (half the appraisers don't even own a cost book) they might put down $10,000 or $15,000 or whatever as the "site improvements" "as is." They cannot even tell you what the site improvements are. Utilities? driveway. Sidewalk. Fencing. septic and well if in the country. Review a few reports. They guess at a lot of things. They might be in the ballpark and maybe not. On unique items - pools and outbuildings - the typical report I see, particularly from a residential appraiser, is a pure unadulterated guess...maybe an educated guess but still a guess. They cannot show you extractions of comparable outbuildings or pools. They cannot begin to even explain how they arrived at half their adjustments. I saw one back a while that made 14 adjustments on the 3 comps. There was vague references to 'held in file' or 'paired sales' without a single exhibit of how they got there from here. And if you read the sanctions from boards that is a huge issue. Appraisers making blind stabs at an adjustment without any support whatsoever. And some end before the board and many escape scrutiny for decades.

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I guarantee that this last one 12, was pulled out their arse. They had zero support for the contributory value of the shop.

sure an appraiser can make an unsupported guess. But most of the time the competent ones don't;