Appraising a fixer upper

[moh malekpour]

A fixer upper could be a foreclosure, pre foreclosure, REO or just a typical transaction between a buyer and seller. In any case, most lenders request an “as is” condition value for the fixer upper property. I don’t see any problem to do an as is condition appraisal on a fixer upper property as long as the value reflects the condition but there needs to be two conditions for the appraiser to do an as is appraisal on such property:
1-there should be few similar fixer upper arms length sales with adequate market exposure and information of such sales in the MLS, which I think it is very difficult to get them as fixer uppers vary in their conditions.
2- estimated costs to bring the subject property to average condition by a certified contractor be available to appraiser so the appraiser be able to use that cost for the condition adjustment of typical sales in the neighborhood.
I don’t see any other way to handle fixer uppers unless do it subject to repairs for those obvious defects and subject to inspection for those that are not so obvious.
It is a big mistake and risk for the appraiser who has no knowledge of costs to repair engage in guesstimation of costs or just use any fixer upper as a comp.

 

[Tony in Ohio]

I agree and disagree.

It is a big risk to appraise such home if you don't have the background.

However, if you do have the background and do these for reasonable clients it can be good work. It is a big chunk of my business right now. The clients are reasonable, leave me alone to do my job in a reasonable time frame, and never really question my values or conclusions.

I do disclaim in my SOW that I am not a contractor, remediation expert, etc, and that I reserve the right to change my conclusions if I receive a report from an expert.

I have rehabbed a couple homes including gutting one, worked with several contractors on several levels, and have hone a lot that were purchases with subject to and as complete with contractor specs provided, so I have a pretty good feel for costs. I miss occasionally but If you get a good track record, most clients for these type of homes understand.

If you don't mind breathing mold, getting fleas, smelling wastes, (Human and animal) and entering vacant homes in risk neighborhoods. Then spending extra hours working up costs, comping active and solds, actually determining current market trends, and writing long descriptive addendum, than it can be a pretty decent niche.

It basically comes down to hard work, dirty conditions, and some risk, Vs working for Mortgage brokers or AMC's. I can live with my choice.

Oh, I am having trouble getting enough light for good interior pic's in boarded up homes, anybody have any suggestions?

 

[Artemis Fowl]

Oh, I am having trouble getting enough light for good interior pic's in boarded up homes, anybody have any suggestions?

err...use the flash?

I do these too...4-5/yr..wish I had more. Love 'em. Challenging assignments where I can apply rehab exp.

I provide as-is and as-repaired. SOW is a big deal with these.

 

[Tony in Ohio]

err...use the flash?

Brilliant, Why didn't I think of that.

Actually I think I need a camera with a better Flash or more sensitive optics, but if your in a big room with no light but a flash light, the Light from the camera flash does not seem to be enough.

 

[Mike Garrett RAA]

Those damn cell phone cameras!

I have a Kodak DC210 that works just fine in the dark.

 

[moh malekpour]

It basically comes down to hard work, dirty conditions, and some risk, Vs working for Mortgage brokers or AMC's. I can live with my choice.

I can live with hard work and dirty conditions. They are part of the job but I am not interest to knowingly engage in risky appraisal. If you are a competent home inspector who can see the extend of the damage and you are also a competent contractor who can estimate the repair cost of the damage, good for you but if you have that kind of experties, you can make more money doing just those works than doing appraisal.

 

[Greg Bell]

Marshall and Swift will give you info you need for repairs.After doing 500 or so HUD repo's it comes naturally.The want estimates and when it's about serious problems like mold and foundation always call for an inspection with no cost to cure.

 

[moh malekpour]

Don’t get me wrong. I was HUD contractor for the HUD disposition department from 1994-1996 doing HUD repos only. My checks were coming from central HUD in DC. They were not for loan purposes, they wanted to know whether to repair and list them or sell them in, as is condition in auction. I was never asked about my cost estimate or identification of damages. It was the HUD policy to have those appraisals in the file in order to process the liquidation of those properties. Doing those appraisals didn’t give me any expertise to call myself a home inspector or contactor. I am not sure how much you can rely on M&S costs but homebuilders and contractors laugh at their prices and they say you can use those for real world.
I checked the MLS in an area for fixer upper sales. There were about 20 sales in there but when I confirmed them with public records, I saw that all of them were recorded but 18 of them had sale prices up to 40-50% higher than what was shown in MLS as sold prices. Only 2 of them had the MLS sales prices. Do you know why? Because, they were either appraised or sold after they were repaired or they were appraised subject to repair and finally repaired when they were closed.

 

[Artemis Fowl]

I can live with hard work and dirty conditions. They are part of the job but I am not interest to knowingly engage in risky appraisal. If you are a competent home inspector who can see the extend of the damage and you are also a competent contractor who can estimate the repair cost of the damage, good for you but if you have that kind of experties, you can make more money doing just those works than doing appraisal.

SOW, SOW, SOW

The ones I do are all subject-to with an investor supplied repair list. I have a form for them to fill for me. If they don't fill it as requested...I decline the assignment. If they don't do what they say they will...they don't get their draw $$ and it comes back to bite them on the 442/Final. All hard money loans.

SOW, SOW, SOW

To accept this kind of assignment without knowing how to structure it properly is not recommended. It's only as risky as you allow it to be.

EDIT: Sorry...Just re-read your 1st post. As-is is the issue. I agree. Without a contractor estimate these would be risky and difficult to comp.

 

[Tony in Ohio]

Everybody has different risk tolerances. If you are not comfortable making reasonably educated estimates for repair costs than you probably should not do these types of assignments.

I personally do not perceive REO's as all that risky in terms of getting sued for discrepancies in repair/condition Items. A good SOW and detailed disclosure of what you saw and how you handled it make for good protection. Even though there is no such thing as steel plated jockey shorts, it does come down to an appraisal being an opinion of value. You can be wrong as long as your reasoning is sound. Just ask any tenured economics professor.

A big part of solving any complex appraisal assignment is being able to put yourself in the potential buyers brain. For REO's that typically means will it appeal to the cheap end of owner occupants, buy and hold investors, or rehab/flip investors. Knowledgeable investors tend to have fairly inexpensive contractors but pad their repair estimates to cover unknowns then pad their profit requirements to cover holding and sales expenses. That gives you a lot of leeway in your repair costs.

Investors are also less emotionally attached so it's more like a commercial property where it's all about the Benjamins. If the numbers work to acquire, repair, resell and make a profit, then someone will buy it at that price.
My big question is limited information on the comps condition and needed repairs. No two properties have the same repair needs, but if you have a big enough investor market to extract from, you can get a good feel for what kind of repair they needed in most markets.

I suppose I could get sued by missing the market on one, but it has not happened yet. I missed the boat on one earlier this year for a regular REO client. Repairs to flip where significant but it could have been rented with just a bath remodel and some cosmetics. It was also on a very busy street and the market took a nose dive just when I appraised it. The combination of next to no buyers, negative external , and repair items, caused it to sit for months. They not only did not sue me, but they had me appraise it 3 more times so they had something on file to justify dropping their price.:blush:

If you know the market, it is not that scary. OTOH, I would be scared to death to do a relo in some of my mid-high end home markets because I just do not have a great feel for some of the quality and updating levels that will cause 100K+ shift value swings.

I guess the photo thing is my camera. I suspected it was, but just did not want to face it, I bought a cheap one in a rush when I broke my old one during an an inspection. It seems decent but just does not cut it in really dark rooms. It's a brand name, but I guess you get what you pay for.