"As Is" and "As Complete"

[Robert Heiserman]

I have recently reviewed several appraisals where the appraiser is requested to provide an as is and as complete value. These appraisers calculate an as complete value then subtract the costs provided by the buyer plus some figure for incentive and profit to obtain an as is value. Is this an appropriate method when there are as is comparables available? In one case, the appraiser was aware the purchase price was $75,000 but using the above methodology, he concluded the as is value as $105,000.

 

[J Grant]

I have recently reviewed several appraisals where the appraiser is requested to provide an as is and as complete value. These appraisers calculate an as complete value then subtract the costs provided by the buyer plus some figure for incentive and profit to obtain an as is value. Is this an appropriate method when there are as is comparables available? In one case, the appraiser was aware the purchase price was $75,000 but using the above methodology, he concluded the as is value as $105,000.

It is not a method I would use -

Imo A SCA using similar condition comps should be used for the AS IS value and then a second set of comps in repaired / upgraded condition ( ot whatever the subject to condition called for) used for the as complete value.
A formula or Cost of repair or upgrades can be used as support or an exhibit but does not replace sales-which measure market reaction

 

[CGinMN]

If it's just a small amount of work being done, finding different "as is" and "as repaired" comps are unlikely, and the condition adjustment is likely going to be derived from a cost basis. If it's a big rehab project, then different sets of comps should ideally be used. If "as is" comps are absent from the market, then cost basis could be used and would be reliable if those figures cost and profit are market-derived. Der

In one case, the appraiser was aware the purchase price was $75,000 but using the above methodology, he concluded the as is value as $105,000.

Was the property adequately exposed to the market? If not, the purchase price may not reflect the market value.

 

[alebrewer]

It's interesting that FIRREA has always required an 'as is' value - in addition to any other value premise - as complete, going concern, etc. In the F/F/FHA world, this requirement hasn't been enforced to any great extent (aside from maybe requiring a site value on proposed construction).

This method:
"These appraisers calculate an as complete value then subtract the costs provided by the buyer plus some figure for incentive and profit to obtain an as is value." is also known as extraction, and is an acceptable methodology for establishing site value - or 'as is' value for proposed construction. Caveat: it is an acceptable method assuming it is performed credibly.

 

[BRCJR]

I have recently reviewed several appraisals where the appraiser is requested to provide an as is and as complete value. These appraisers calculate an as complete value then subtract the costs provided by the buyer plus some figure for incentive and profit to obtain an as is value. Is this an appropriate method when there are as is comparables available? In one case, the appraiser was aware the purchase price was $75,000 but using the above methodology, he concluded the as is value as $105,000.

It depends......

First, I don't assume there are always a different set of comps in a case this. For minor renovations it may actually be the best method.

I see that method with some frequency in commercial assignments. It is support for their opinion, whether one agrees or not they like that process. It is stated and disclosed as to what they have done.

The more important bigger picture is the "subject to" value. That is what a lender will loan upon. That is where I would place most emphasis in a review.

Does the "as is" value method make the report less credible for a lending decision (assumption it is for lending)?

 

[J Grant]

Clearly minor renovations or a minor repair do not require a second set of comps. I mean , isn't it assumed we all have common sense?

Anything that goes beyond minor, wrt substantial cost and upgrades or repair that notably change a property would normally affect value / and market appeal to a set of buyers and therefore needs similar comps for a SCA support.

 

[CGinMN]

Clearly minor renovations or a minor repair do not require a second set of comps. I mean , isn't it assumed we all have common sense?

I don't think that should be assumed. Remember, other people besides the OP rely on these threads, and in the near future that will include recently licensed CRs with zero real world experience handling these issues.

 

[alebrewer]

mean , isn't it assumed we all have common sense?

C'mon J... you've been on here long enough to know that's a HORRIBLE assumption...

 

[DWiley]

These appraisers calculate an as complete value then subtract the costs provided by the buyer plus some figure for incentive and profit to obtain an as is value. Is this an appropriate method when there are as is comparables available?

That is certainly a recognized method. In my experience, appraisers often underestimate the incentive/discounting component, especially if the repair/reno is extensive. Of course, that is why one should measure those results against what the comps say as well, if comps are available - but that is not always the case.

 

[Terrel L. Shields]

often underestimate the incentive/discounting component,

PRO Cisley

We have had several threads over the years complaining the CA and SA were way far off with the CA way high....that's a good indicator you've underestimated the functional obsolescences. FO and site values are key to an accurate CA.