Appraisal During Remodel

[William jackson]

Last week I asked a quesion about non permitted comps. I received 35 replies and it really helped - thanks to all. This week I have another tough one. The subject is in the process of having a 1000 sq ft addition built - it is currently in the rough framing stage. Also the existing structure is missing the siding on the entire east side of the home . The insulation and piping are exposed. This will be replaced when the addition is sided - per homeowner. Keep in mind this is a 700 thousand dollar home that has allready had extensive remodeling done to the kitchen etc.
I talked to the underwriter and she said if the property "use" is the same as it was prior to the addition then just don't include any value for the addition. I asked her if a cost to cure was neccessary for the siding and she said no. I told the loan agent what the underwriter thinks is ok and what I think are ok are not always the same.
I'm looking for some direction here. Should I figure the cost to repair the siding and just make an across the board adjustment on the grid- then explain ? Also has anyone out there done appraisals during a remodel or addition. Any information would be greatly appreciated.
Thanks, William

 

[Pamela Crowley (Florida)]

Since the underwriter said you don't need a cost to cure, don't give 'em one.

Do give them a full explanation and pictures of what is there, isn't there and an "As Is" value.

What would the typical buyer think of this house in the condition it was in at the time of your inspection???

 

[Farm Gal]

William:

Read the Market Value definition in the report you are signing... very carefuly.

Pam is leading you the right way... what would your MARKET perception be of the house in it's as is condition? Ok it is fairly big-bucks and aparently nice... but

Be very careful...

Will the lender permit you to do this "Subject to Completion"? or or you 100% stuck on 'as is'?

I'd try real hard to swing it to subject to completion... I would walk away from the deal if there is no market data to support analysis.

IF you are stuck with 'as is':

I would make very sure I had concrete evidence, anecdotal if no other available, of attempts to market (if not actualy sell) properties with similar partial completion projects underway... no matter how old or different in style... I'd surely try to find at least ONE SALE in a fairly similar market segment.

DO NOT make unsubstantiated assumptions that the market would perceive the addition/partial completion as detrimental, nor as beneficial without some sort of evidence.

Best of luck on the research on this one.

There is no easy out: hint .... except "subject to".

 

[Phil Rice]

I have done a few like this before.

I ask myself, would the "construction in progress" add value? If I can convince myself that it is far enough along that someone would pay more for the house "as is" than before the construction started, I disclose my opinion, include photos, and make no adjustment (no value given due to lack of market data).

If the construction in progress would have a negative impact on value, I make a negative adjustment, and explain as best I can. Again, I would make sure to include lots of photos. I don't shy away from unsupported adjustments, but I do try to disclose and explain that it is just my opinion.

 

[Farm Gal]

Phil:
I was trying to indicate that anectdotal evidence which distilled becomes "appraiser opinion" works... but that I would want at the very least SOMETHING B) (however nebulous) with which to address the problem...

sorry if it sounded like I was saying you gotta have matched pairs :blink:

 

[walt kirk]

How many people would buy the house in the condition it was at the time of inspection? I would bet quite a few less than the number who would buy it after completion. I would demand plans and specs and prepare the appraisal subject to completion. An as-is appraisal of the property under construction in as-is condition is a complex assignment and should be completed in narrative format at a higher fee.

 

[Phil Rice]

I submit that it is not a question of how many people would buy.

The question is, would at least one person buy, and if so, at what price? IMHO, any property (almost) will sell if the price is right, and that is my job as an appraiser, to give my opinion about what that price is. If my client wants an "as is" price, I will provide it.

The level of effort in arriving at my opinion (scope of work), and documenting/supporting that opinion is going to depend on the intended use. For routine refi, I am willing to take my best shot, disclose my level of effort (what I did or did not do, and lack of market data), include lots of photos, and then move on to the next assignment.

I recently had a property with lots of construction in progress, and lots of problems, and the intended use was to settle a divorce. I worked hard on the market research and satisfied myself that I had done the best I could do. I gave my honest opinion and I charged a little bit more than my normal fee.

If your client wants an all out effort and is willing to pay extra, then by all means, go for it. I am not suggesting that you be sloppy or careless.

Don't lose sleep worrying about market data that does not exist or is not readily available in the normal course of business. Do a good job that is consistent with the intended use and what your client is willing to pay. And make sure that you include lots of photos.

 

[Restrain]

Figure in the cost to replace the siding at least, because even if they tear down the addition, that wall's gotta be sealed. Then put on your real estate salesman hat. If you were trying to sell this home on the day of inspection, how would your potential purchaser react? Sometimes, that's the only way to do these due to a lack of sales data - through probable buyer perception. Admittedly, the person buying a $700K home is probably going to have more liquidity and loan possibilities than a person who can barely get into an entry-level home, so they'll have more flexibility for the issues you're dealing with. That should get you pointed in the direction of market resistance, if any.

Good Luck

Roger

 

[Mike Garrett RAA]

One person a market does not make!

I would appraise it "subject to".

I never "demand" anything but would ask for the plans and specs.

 

[Phil Rice]

To follow up on Mike's comment, ask yourself this question:

If one person does not make a market, how many people does it take? 10? 100? 1,000?

If you priced that property at $100, would there be 1,000 buyers ready to step up and purchase? Whatever you think it takes to make "a market", you can develop an opinon of the price it would take to sell the property. That is your "as is" value. Just because a property is unique or atypical, does not mean there is no market or there is no value.

I see construction in progress as similar to a swimming pool. In my area, a pool will eliminate a large chunk of the market because they just don't want a pool (might be different in Florida or California). You hear the occasional story about someone who buys a house with a pool, and immediately fills it in. But for most people, they will just buy some other house.
Does this make a house with a pool hard to appraise? Yes. Should you turn down the assignment? No.

Someone might buy the subject of your appraisal and tear down the construction and replace the original siding, but that would be like buying a pool and filling it in. Take a good look at the house and the construction, think like a buyer, and ask yourself if you agree with this statement: that house would sell to someone who wanted to finish up the construction.

Depending on how far along and how good a job they are doing, the construction might have a positive, negative, or neutral impact, but the property will still have some value. If you think plans and specs will help you arrive at an opinion of the market value, then by all means, ask for that information.

As always, disclose and include photos.