So, this property has roughly 12,000 on back taxes, not including the current years bill. The house is worth around $85,000, once its been fixed up and around $40,000 as-is. This particular client wants all homes to be brought to C4 before they will lend and ask any homes below C4 be made subject-to completion of repairs. I have at this point sent a first appraisal and then a second revised appraisal. The first one I sent in with the HC for the repair items and an EA that the back taxes would be paid and here's why. It is not a law here that any and all monies assessed against a property must be paid in full prior to or at closing. You can pass title with back taxes and they carry over. This does not extend to other types of liens like the mortgage or construction lien. Because of this, knowledgeable and prudent buyers do pay attention to back taxes and pay accordingly. Yes, sometimes the contract will state the seller is going to pay the taxes. Sometimes the contract says they will not. Sometimes they agree somewhere in-between. But in all cases, the amount the seller is willing to pay is not going to include those back taxes - they will not absorb those costs unless they are already getting the property at below market. This is why I used an extraordinary assumption, rather than an ordinary one, to address the years of delinquent taxes.
So, then the lender reviewer came back and asked that I adjust for the back taxes in the sales grid instead. I went ahead and did this because, I really didn't have a problem dealing with the issue either way. As I said, it is a known value issue and will affect the amount a buyer is willing to pay; I can evidence it, I can measure it. I am very open and appreciative to hear any feedback on the SCA however, I was wondering how I might then deal with the same issue in the Cost Approach! (aw hell - lol)
This particular lender also requires the cost approach on all appraisals and in this case, I did not account for the unpaid taxes. Their reviewer didn't take issue either, and they don't have monkey reviewers (not to say they are perfect either, just saying they have actual appraiser reviewers). But I started to wonder if I screwed that up (too?). This issue is a market reaction issue, a very straightforward one, but still a market and not precisely a cost issue. Or is it? Or, and maybe in addition to, this would be dealt with the same way functional depreciation might be? Damn it. My CE is coming up and I think a Cost Approach refresher is in my future.