"As Is" Appraisal of "Property Undergoing Renovation"

[Tumbuktu]

The property is being renovated and remodeled. It is not completely functional (Bathrooms sinks, faucets have been removed, Floor is in bad shape etc. etc.)

I completed the assignment with Hypothetical Condition based on "Renovations Completed as Per Specifications" and provided the 'List of Specifications' in an addendum.

The lender comes back and wants the appraisal done "As Is"

As per as my knowledge:

• As Is Appraisal in this this would violate USPAP, as it would be misleading (give much less value than what seller can get after renovations are completed);
• As Is Appraisal would affect the Highest and Best Use.
• As Is Appraisal cannot be done by Sales Comparison Approach, as nobody would sell a property (hence no comp would exist) in the midst of renovations, knowingly that price appreciation would be much higher upon completion than the amount being saved by not completing the renovations and selling the property as is.

I would appreciate suggestions and guidance.

 

[GeorgetownAP]

Of course you can do the appraisal "as Is" if that is what the lender requires, and not be misleading at all or in violation of USPAP. The opinion of value would be based on the effective date of the inspection in the current condition - thus, you would have to adjust for the property in the condition it is in as if a potential buyer were to see it torn up - what would the value be, keeping in mind potential nuisance fee, perhaps as well, and detailing what you saw., and you may need to provide a cost to cure if one of the three "s's" are involved (safety, security or soundness) Obviously, the opinion of value is significantly affected by the current condition. How would that be misleading?? It would only be misleading if you provided an opinion of value as if everything was done and completed , as that would not be "as is".

Properties are sold in midst of renovations all the time --- and the value reflects this.

 

[J Grant]

I second what Georgetown AP said above.

 

[Tumbuktu]

Thanks. I am clear on 'Misleading Part'. Any value reflecting the current status won't be misleading.

What about Highest and Best Use?

 

[GeorgetownAP]

Thanks. I am clear on 'Misleading Part'. Any value reflecting the current status won't be misleading.

What about Highest and Best Use?

I think you are getting highest and best use mixed up with condition. Is the subject's best use (after going through the HB criteria - feasibility, legality, etc, etc) a single family, vacant land, etc... etc..... Highest and best doesn't necessarily change because of a property is in the midst of a renovation..... (of course, it the reno was abandoned, and home was in such disrepair, maybe then HB would be as unimproved land), but that doesn't appear to be what you are dealing with....

 

[Tumbuktu]

I am dealing with 'Abandoned Renovation' if the 'Effective Date' is in the midst of renovation and no hypothetical condition is used. I would have to appraise it for what the property would sell for the condition it was in on the day I inspected it.

 

[Randolph Kinney]

Agree with Georgetown above on HBU.

The first thing to do is identify who are the likely buyers of this property? Is it eligible for bank financing in the as-is condition? If not, then you are talking cash buyers and usually developer / contractor types that will demand a discount and profit to flip the house.

The other possible buyer would be one that would use FHA 203(k) program.

Research the sales to see how many of each.

 

[GeorgetownAP]

I am dealing with 'Abandoned Renovation' if the 'Effective Date' is in the midst of renovation and no hypothetical condition is used. I would have to appraise it for what the property would sell for the condition it was in on the day I inspected it.

Has the property been abandoned?? You are appraising the property in the condition it is in the day you inspected it - HB has to do with the USE not the condition. If its best use is as a single family(after the test for HB)- that is what it is. The condition (to include any potential three "s's) will affect what a buyer is willing to pay for the subject as of the effective date (warts and all) and your "as Is" should reflect that - adjustments, choice of comps, etc. Good luck

 

[Tumbuktu]

The 'Maximally Productive Use' is basically the 'value'; For example

Selling the House AS IS: $200K
Amount to be spent on Renovation: $50K
Selling the House After Finishing the Renovation: $300K

So in this case 'As Is' would not be the Highest and Best Use.

 

[Randolph Kinney]

The 'Maximally Productive Use' is basically the 'value'; For example

Selling the House AS IS: $200K
Amount to be spent on Renovation: $50K
Selling the House After Finishing the Renovation: $300K

So in this case 'As Is' would not be the Highest and Best Use.

The question to answer is, HBU as improved. If homes are being bought and razed to build a new home that is bigger, latest construction and design, then as improved is not the HBU and may be an interim use.