"AS IS" appraisal & cost to cure?

[Marcia Langley]

Imagine you are a prudent and rational buyer looking at two properties that are otherwise similar, but one is very beat up. Which one is worth more?

Steven,

LOL, as usual you are quite concise. That more or less is what is nagging me.

Another thing that is nagging me is that the check boxes seem to be "read" by the system as an initial validation for compliance. I know I think too much but it seems like a way to slip some things under the radar.

 

[moh malekpour]

Cost to cure is the same as itemizing the cost to repair and it is usually for properties with physical or functional condition problems. needless to say that some conditions are not curable so there is no cost for them. When you do an REO appraisal, the bank may ask you to appraise it in as is condition only with an estimated itemized cost to repair to accommodate the safety and security of the property ,or appraise it in as is and as repaired conditions with an estimated itemized cost to repair. The itemized costs to repair is something independent from as is and as repaired conditions when it comes to the condition adjustments of the comparables.

 

[hastalavista]

The itemized costs to repair is something independent from as is and as repaired conditions when it comes to the condition adjustments of the comparables.

I agree with Moh.
Perhaps there is some confusion as to what "cost to cure" means to the client and how it is to be addressed in the appraisal?

A subject has deferred maintenance that has an effect on its market value. An appraisal is ordered to determine what the value is of the subject "as is". The report details the subject's condition, with deferred maintenance, and estimates the market value of the subject as it is, with no changes, repairs or corrections made.
Let's say the subject, unimpaired, would be worth $400k. "as is", with its impairments, the analysis concludes the subject is worth $380k.

Report is completed and then a new requests is made to provide a "cost to cure" for the subject. Assume the appraiser is qualified to determine what a reasonable cost is, and estimates the cost to correct noted deferred maintenance items is $9,000.

So far, so good.

Now, if the client expects the report to use the repair estimate as a "functional" or other type of adjustment to bring the subject back to an "unimpaired" condition, that is not an "as is" appraisal because the work hasn't been done, the subject "is not" in an unimpaired condition, etc.

However, if the client simply wants a cost to cure estimate and the estimate is not used to "correct" the impairment of the subject in the appraisal report, the final value remains as originally reported and a "cost to cure" estimate is provided.

This would be an appropriate and reasonable analysis if the scenario was as Steven suggested; a buyer trying to determine if it is worth the time/effort plus an estimated $9k in costs to purchase the subject "as is" for $380k vs. an alternative without any impairment at whatever its value is (let's say $400k; there's a perfect, unimpaired, match).

 

[CANative]

That would be reasonable Denis... in a perfect client world.

If I knew my client is a buyer who has dreams of fixing and flipping, I might quote him a range of fees based on how detailed the inspection had to be, how severe or moderate deferred maintenance might be, how accurate the estimate/opinion had to be, etc.

But when broker or lender clients ambush me with these types of post submission requests, I get pretty testy. It's easy to figure out C2C for individual items, like a roof, or broken windows, or floor coverings. But what about...

a little (87 yr) old house that is "showing its age" (typical of houses in this little town). The client requested an "as is" appraisal. The appraiser did a pretty good "as is" appraisal that noted the age related short commings and applied a "condition" adjustment on the SCA grid (with supportive comments).

The condition rating typically isn't based on one item, several items or even many specific items. A house like this may need major updates to kitchens and baths, plumbing, electrical, roofing, paint, cleaning, floor covering, spider webs, stinky bedrooms, torn, misssing or bent out of shape screens, painted shut windows, dry and cracked window glazing, dried out wood siding, holes in the porch, overgrown or neglected landscaping, sprinklers that don't work, trash in the crawl space, water in the crawl space, kitchen and bathroom cabinetry rotting away from leaking plastic plumbing, rotten gray water in the dishwasher.... in general, a pooped-out tired old house.

You think I'm going to make a detailed list of the estimated cost to repair each item? No. I'm going to find houses that appear (from exterior inspections, MLS comments and photos, agent interviews) to be similar. I'm going to find sales of similar houses which are not afflicted, less afflicted, completely remodeled, etc. and come up with a WAG for a condition adjustment.

So when they ask for a "cost to cure" I ask how much do you want to cure? And how much more are you willing to pay me for this extra work?

 

[Mike Kennedy]

"Cost to Cure" already factored into Physical Depreciation in C.A., (market-indicated residual value) Condition Adjustments in M.A. ......supplemental CTC is redundant resulting in double hit and misleading value in an "As-Is" Valuation.

 

[hastalavista]

But when broker or lender clients ambush me with these types of post submission requests, I get pretty testy. It's easy to figure out C2C for individual items, like a roof, or broken windows, or floor coverings. But what about...

So when they ask for a "cost to cure" I ask how much do you want to cure? And how much more are you willing to pay me for this extra work?

(my underscore)

No argument with you there, Greg.
It wasn't clear to me from Doug's post what his role was and what the intended use of the original report was: Is Doug the supervisor, the original report done by someone on his staff, and this request coming in after the fact? Is Doug a reviewer? Is this assignment for a mortgage finance transaction?

I also agree with the last part of your quote:
How much new work do you want and I'll tell you how much more this is going to cost you.

 

[Mike Boyd]

I like it also, Christine. I'm going to plagerize it. However, I will give you credit in the report. "Christine did it!"

 

[Christine Marie]

I like it also, Christine. I'm going to plagerize it. However, I will give you credit in the report. "Christine did it!"

but, it might not actually totally be mine, Mike B., i too have plagerized in the past.... so please allow me to pass on the credit, thanks though...

 

[Marcia Langley]

If the assignment were not for mortgage lending it would be a different ballgame. If I were a homeowner, for example, I would not get my "cost to cure" from an appraiser. I would get the opinion of value from the appraiser (either pre-repair or post-repair or both) and get repair bids from repair providers. As an appraiser, this is what I would advise my homeowner-client to do, as well. From the homeowner's perspective, it is the smart thing to do.

In the mortgage lending environment, the "subject to" option puts the responsibility (liability) for determining costs on other experts where it belongs. When a lender/client demands an "as is" with cost to cure, they have accomplished their ends but have put the liability back on the appraiser.

It just seems like a ploy to get the liability back on the appraiser, worsen the terms for the borrower, and disguise the repair from the automated systems that read the check boxes.

Given discrete repairs that are easy to get bids on, the appraiser may be willing to take on that liability. But with O. Doug's example, it would be much more liability than I would be willing to take on.

 

[jay trotta]

"as is" - is what it means........period - backin U up babe, thought eye fergot cha, neva happen.

Cost To Cure - on an "87" year old dwelling - carpet/paint/w/w - whaa??

OK, "Mista/MS/MRS/ Appraiser" - what do U think of the (1) Foundation ? (2) Plumbing ? (3) Electrical ? (4) Underlaymint fer the Roof ? (a) is the Roof tight to the weather ? (5) Any Insulation in that puppy - that works ? (6) Winders ? (7) Doors ? (8) are the walls "plumb" & floors level ? (9) Ifn ya lift up the lil mis's skirt is her structural system in good condition, afta all she gots 87 years of wear N tear on er ??

I got yer "Cost ta Cure" right here.........ROFL

answer "yes" to any of the above and eye wants ta "C" a license fer that !!