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Appraising A Duplex Shell

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Dave Snifka

Freshman Member
Joined
Feb 26, 2003
I would appreciate your help in appraising a building that is basically a shell. I am working on a residential duplex that is 110 years old. The building has been gutted to the stud walls. The only thing left inside is the bone structure, no plumbing, no electrical, no HVAC, nothing. It is my feeling that I have about 25-30% of a complete building. My thought was to price out the building with a cost program and then make a cost to cure condition adjustment to my comparables. My problem is that the subject is in a marginal neighborhood with similar sized duplexes in average conditon selling for $45,000-50,000. The cost program gave my a number of $96,000 for a complete building this size. Have any of you had a problem such as this and if so, how did you handle it?

Thanks,
Dave
 

airphoto

Senior Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Pennsylvania
Sounds to me, Dave, like a negative market value. Do your sales comparison approach as if the building had already been fully re-habbed (what will it be worth when completed?) Subtract from that your cost to cure, keeping in mind that you'll have a fully re-habbed building when done (as compared to whatever condition your comparable sales are in ..)

Might find out that it's valueless as it sits ..
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Look at the surrounding neighborhood again. Are any of the properties (of any kind) newly rehabbed or in process of? Is there Gentrification in this area? Is you subject going to be the best in the neighborhood when finished? Any chance this is going to start a new trend of Gentrification or is the subject simply going to be the best in the neighborhood until the renters wreck it - again?

At best, at this time, I would guess that once it's finished (with average quality construction materials and workmanship) it will not be worth much more that the comps in average condition. As airphoto said, this could mean that it will cost more to rehab it than it will be worth when finished possibly making the current "as is" value the value of the vacant lot less the cost to remove the structure.

Is this assignment "as is" or do you have the plans and specs for proposed?

Get your money up front!!!!!! and
Totally ignore what anybody else wants it to be!!!! It is what it is.
 

Wally Jones

Senior Member
Joined
Jan 23, 2002
Professional Status
Certified Residential Appraiser
State
Florida
What's your assignment? As is? Subject to renovation? Is this for a lender? If so, are they aware the property doesn't meet minimum property standards?

Are you qualified to estimate what the renovation costs would be to bring it into marketable condition?

All above made good points, however, you may need to recommend a professional contractor be consulted to provide a cost estimate. As Dave pointed out, maybe the building has reached the end of its economic life and has no value (negative, in fact, when figuring demolition costs).

Another consideration would be to talk to your client about HUD's 203K program to see if the subject qualifies.

Good luck!
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
You haven't provided specifics to allow us to help you.

Are you valuing "as-is" or "subject to"?

"Subject to" is straight forward. Perform the rent study and value it!

On the other hand, "as-is" may be a workout. Your lower limit of value will be vacant land value.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
On the other hand, "as-is" may be a workout. Your lower limit of value will be vacant land value.
The value is a tax decuction as a gift to Habitat.
Lot minus bulldozer man's salary?
 

yvonne dill

Sophomore Member
Joined
Jan 21, 2003
Sounds like Anywhere, Ohio.

The responders are all correct in their assessment of the subject's value is in the lot, and that repairs would be an over improvement.

Here's a few things to consider.

Look at the whole neighborhood. Not just the average condition sales. I'll bet your subject isn't the only one in that condition that's sold. I'll bet the neighborhood is predominantly rentals. Remember the $45K-$50K market probably isn't in the condition you're subject would be in if you put the $96K into it. It would probably be considered an over improvement. Remember, putting $96K into a building doesn't necessarily make it worth $96K plus. Talk to investors in the neighborhood.

Especially if the market will only pay $50K. Those $45K-$50K duplexes are HABITABLE barely. 4 walls, roof, outdated kitchen and bath, oil burning furnace in the basement that works kind of. If you improve your duplex any higher you've wasted your money.

I agree with the responders, that without knowing what the purpose of the appraisal is, it's hard to say. But tread careful, I would hate to see this subject end up in our portfolio of REOs, because some yahoo buyer got a big rehab loan and walked with the funds, leaving us or somebody like us holding the bag. We've got too many of these now.

As Lee Ann would say Splain, Splain, Splain. I would provide a very detailed neighborhood anaylsis in narrative, explaining the good, bad, and ugly.

More than ever, I've realized there is a lot more to this appraisal thing than picking 3 comps and filling out a form.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Not to beat it to death...but, this is not a typical residential appraisal. Consult with your mentor, if you don't have one, get one.
 
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