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Consulting Question

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JennC

Thread Starter
Junior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Hampshire
Hi all,

I have a professional contact that would like me to help locate properties for him to invest in. He's been doing rehab projects over the last few years but wants my opinion on the potential sales price after the renovations are done. He’s not as confident with the market so volatile.

I would possibly be doing many properties for him before he even purchases one, so he doesn’t need a full appraisal. What would you suggest for fees, forms, etcetera?

Regards,
Jenn
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
This is not consulting work. Giving a "potential sale price" or "potential list price" is reporting a type of value. And reporting a value is an appraisal subject to USPAP.

You can use the a la mode GP form if you'd like, or the long form. The AI form is okay too if you don't have a la mode. I know ACI has their own general form which would work well also, I'd assume. Just don't use the Fannie forms and be sure to modify the definition of value appraised. I slightly alter the "Anticipated Sales Price" definition you find on the ERC 2003 form. I'd tell you what to change, but if you read it, you can figure it out. It is self explanatory.

How much should you charge? It depends on how qualified you believe you are to provide a service like this. Figuring out what the house will sell for after rehab demands much more work than you think. You need to know what is wrong with the house now, what is being done to remedy the wrongs, and what improvements cosmetically and upgrade-wise will be made. A breakdown of the costs is important. Most of that stuff is not ready up front, so you have to know enough about construction to do it yourself. Once you know that, it is not as simple as looking at the comps rehabbed up to that point and saying voila. You need to make a bunch of hypothetical conditions and extraordinary assumptions. You need to know how long it will take to repair, how long the marketing time is, and project the market out over that span and adjust accordingly. Being new to this, if you believe it is an avenue you can grow in and specialize in, you may want to start out cheap so he uses you and you gain the experience that you can use with future clients when you are good. When I started doing these kind of assignments I wasn't yet an appraiser and I did them for my dad's family business, back when I was 15 or 16. So basically, I did them for next to nothing. Now I won't touch even the easiest of ones for less than 500 banana splits. And, because investors are notorious for not having any money except when they want to impress you, I always get paid up front.
 
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DTB

Elite Member
Joined
Jun 11, 2004
Professional Status
Certified Residential Appraiser
State
Illinois
Maybe I'm wrong but the OP asked about the MV after rehab, not a before and after scenario?

Providing the rehabbed value is no biggie. The investor will need to factor his rehab costs to know what to pay for it on the front end. That's the tough part.

If you are only providing MV of finished product, no biggie, but get paid upfront!
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
You would make more money becoming a buyer’s agent and a listing agent for this client. Get a Real Estate Salesman License and use you appraisal skills to assist the client on both sides of the potential transaction.
 

Mike Garrett RAA

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Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
The easy way to understand the difference between an appraisal and a consulting assignment is the out come. If it is a value...it is an appraisal.
 

Kathleen Bryce

Sophomore Member
Joined
Apr 6, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Don't get to wound up in a form for such an assignment. Remember just because it is an appraisal it doesn't have to be on a form. I have done a similar assignment with a two page narrative report.

Just remember if even on a napkin you must address the 12 required points. The rest you spell out in your scope of work. Such as "Subject information is as was publish in Public Records and is deemed reliable, yada yada yad..."

Type it up, no grid required or a simple grid you do in Excel.

Keep it short and sweet and I think it sounds like a win-win for both you and your investor. Especially now we all need to start thinking outside of the box. Check boxes that is...

Just my $0.02

Kat Bryce
Fort Myers, FL
 
Joined
Oct 22, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
Its a "comp check"

LOL...

I just HAD to say it...

At least the investor wants/is willing to pay SOMETHING for it.

Like the previous post said, it can be on a napkin (or verbal - but I wouldn't suggest that) as long as you cover the 12 points and provide a written or oral certification. And keep a workfile for 5 years.

Congrats - looks like you may actually get paid for a few comp checks....

todd

(edit to add - it's also an appraisal)
 
Joined
Oct 22, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
Just to add.

Sitting here thinking about this, I would probably spend a couple of hours writing up a good 1 or 2 page narrative covering all my bases and scope of work. Since you may be getting multiple assignments this would be worth the time invested in creating it.

You didnt mention (I dont think) whether or not you plan on physically inspecting these properties (can be done either way - just be specific in your scope of work), but when you get a new assignment from him, just pull comps and analyze them and use the template above to report your findings. You don't even have to grid a sale if you don't want to. The key is to make the results credible based on the scope of work undertaken. And the scope has to be dead on and very specific - ie - it should outline your expectations of the condition of the property once renovated and be very specific as to the degree of inspection and research conducted.

Charge a few bucks and move on. By a few, I mean about $100-125. May take no more than 30-40 minutes. A few dollars more if you or the investor feels like the property needs inspecting.

I know others here will slam me for taking this approach, but the market demands a cheap answer to these questions, and those that can provide an alternative compliant product will have a better chance at competing. Not everybody wants/needs a $350 full blown report.

Problem is, most of us are not so fortunate as to have a client that actually wants to PAY for a desktop or other such product. They just want a free appraisal. Thats why I won't do them. If I could cajole $125 out of BOA or a mortgage broker for a "desktop" I would do it in a heartbeat - you could do a compliant one in 30 minutes if you live in an urban area. (BOA was offering $35 last time they approached me - not enough for me to mess with it).

Consider yourself lucky.

todd
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
The easy way to understand the difference between an appraisal and a consulting assignment is the out come. If it is a value...it is an appraisal.
(my bold)

Mike-
May I add the following?
If it is a value with a recommendation based on the analysis, then it is a consulting assignment.

JennC-

This sounds like a relatively straight-forward type of appraisal.
A. You don't have to do it on a form. In fact, I wouldn't. Sounds like a page or two narrative with a sales grid to me; my SOW/Certification may be longer than the narrative report (restricted use).
B. As long as you are not making any recommendations, it is an appraisal assignment and not a consulting assignment.
C. There is a choice on how to value the subject (Prospective or Hypothetical Condition) which you will have to discuss and agree to with your client.
Prospective means that your value will be in the future based on the EA that the subject will be finished and ready to be marketed on date X. This is the more complicated of the two choices as you will be required to forecast the market direction in the future.
Hypothetical Condition is what you would now do for a house under construction; you appraise the subject as-if its rehab were done "today"; your client can then do his or her own forecasting as how the market will change in the future.
And, you could be asked for both; a HC value now and a prospective value in the future.

IMO, the most complex part of the assignment will be identifying exactly what the client wants (in terms of HC or Prospective value) and then constructing the appropriate engagement letter and SOW, EAs and Limiting Conditions so that the appraisal will be meaningful to the client and compliant with USPAP.

If you only use forms in your appraisal work, this may be a good opportunity to expand your experience and complete a non-form appraisal. SR2 outlines what is required.

Good luck!!
 

JennC

Thread Starter
Junior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Hampshire
Thanks for all the great advice!

I’ve been working with this investor for a few years. Due to the market conditions in the past he didn’t need help pre-sale. Now he’s not too sure and wants my professional opinion. All my other appraisals for his lender were based on a list of improvements he was going to perform, and that’s what I’d base the appraisal on. It was pretty basic actually. If he does end up purchasing the property I’d be doing the full appraisal for the sale.

I’ve been considering getting my sales license for years, but NH now requires me to take a 40 hour class. May still be worth it.

This is a niche I’d love to get into.
Regards,
Jenn
 
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