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"as-is" Appraisal For Home Under Construction.

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GroundSwell

Sophomore Member
Joined
Apr 6, 2003
Professional Status
Certified General Appraiser
State
California
Not sure what to do here. The subject property is currently undergoing a major renovation that includes an additional 1000 sf. Currently it is uninhabitable. When I took this assignment on I explained that I would do the appriasal 'Subject-To' completion of the project per palns and specifications.

Now, however, they want to have the appraisal done "as-is". I get a ton of work from this client and I don't want to blow them off, but I'm not really sure how to handle this one. How do you account for a home that is partially complete? There are no recent sales of homes in a similar state of construction. What about calling the incomplete work as 'curable functional obosolescence'? How would I adjust for this? Basically... I'm at a loss. Any help would be greatly appreciated. Thanks.

RJ
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
If you have a "cost to cure", i.e., the cost to complete the renovation, then you can back into the value, applying an economic obsolescence for market resistance for the home being sold "as is".

Roger
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
B) RJ,

I have a current similar problem except this is a new home built on a waterfront lot, in a long established neighborhood with homes 60-80 years old & more. The house is a shell. I have refused to complete as the owner and the lender cannot provide any specifications on what the property will be once completed. How can you "back into" a value when you have no clue what the finished product is supposed to look like?

They are looking for a $400,000 refinance loan. Granted, the site is worth more than $300,000.00 and I have measured the structural shell of the house. However, I know, should this ever end up in litigation, some smart *** attorney will ask "How did you know" the value of your adjustments when you did not even not what you are adjusting for? Good question. I do not know. No specifications, no reliable cost to cure, ergo, no "as is" appraisal report. I do not even know what bath or kitchen fixtures the subject will have as it has none now and no specs to tell me what will be there. Remember the song...."just walk on by"....? That's what I have done. And, BTW, send me a trip charge for looking at this mess.

Don Clark
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
You all are making it too hard on yourselves.

As Is in a situation like that means vacant land appraisal with cost to cure to tear down the mess and remove all the debris! :rofl:
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
:D I like Pam's suggestion!
Might not make the LO happy, but is that our job?? :batangel:
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
In my area, I have seen several of these. Typically, if partially completed house (originally new materials) the property will sell for the value of the land plus about 25-50% of construction to that point.

One I did as if complete was 2,200 SF and appraised $120,000. Land worth about $20 thou [1995 prices]. Guy framed it and put roof on. Some sheathing. Then walked. Set empty for 5 years. Sold for $56,000 and site worth about $25-30K. Sheathing had taken water and swelled, but the buyer (a carpenter) did a bang up job of finishing it right. Wants to sell it for $150,000.

Old houses being remodeled often appear to not even be economic. I appraised one for $12,000 once (land value), and a guy paid $20,000. He has worked on it ever since and it still looks like crap. Another bought old house and has worked on it for 2 years. He could have built a cheap house for what he has already spent.

I simply go to a component cost book and cost out the parts that are there (foundation, frame, roof, not much else?) Gets a $ contribution and you can discount that. i.e.- if you have sales like above, you have an idea what the discount will be. Land value always as if vacant.
 

Phil Rice

Member
Joined
Apr 22, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Keep in mind that any property will sell (quickly) if the price is right. That is what your client is asking you to do, give an informed opinion about what that price is.

Even though it may not seem like it, you are the expert.

Value of the land (if you can get a good read on that) minus cost to remove the structure would be the rock bottom minimum.

Construction of an addition goes thru phases. During the first phase, it is more destruction, and may cause the overall property value to go down. After awhile, they make enough progress that the construction has a positive impact on value. Take a careful look and form an opinion about where you think they are.

If it was your money, and you had to sell the property (as is) in 60 days, what would your asking price be, and what would you settle for? It would be nice if you had solid market data to answer the question, but most likely, you are going to have to read between the lines.
 

Carnivore

Elite Member
Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
I have a slightly different take on this. First, I remind the author of this thread that the competency provision of USPAP applies. Before you get riled up please read on.

What I mean to say is, that you may not be qualified to determine what the cost to complete the subject. This because of the extensive work needed and the new construction addition. Did the original owner abandon the project? If so why? Did the original owner have a builder? What happeneed to him? These are important questions because the subject may already have code violations that would be to costly to fix, economic obsolesence is what I think they call it.

So there is where the competency provision comes into play. Are you a general contractor? Do you have sufficient knowledge of local building codes to provide a report that is not misleading?

I think you have more than an appraisal assignment here.

just my 2 cents.
 

Dave Smith

Senior Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Wisconsin
Dig out your 2003 USPAP bible and turn to page 115. Read Section D.2. But be sure to read the final paragraph as well as the bold print that starts D.2.
 

Carnivore

Elite Member
Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Dave,

I believe this also is a prospective value opinion using a hypothetical as explained in D1, lines 3969-3996.

Either way, the Client has to tell the appraiser what they want and that does not mean what value. We donot appraise value. If we did, then he could use another subject to get the value(tongue in cheek).

This is a tough assignment. Hope he is getting big bucks. Maybe the bank can find a sweat shop with a trainee willing to take this on.
 
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