Cost to cure adjustment on the grid?

[CGinMN]

This feels like another thread arguing semantics.

A cost to cure estimate is not the same thing as a cost to cure adjustment. An adjustment is your opinion of the market’s reaction to the variable in question. If you don’t like calling it a “cost to cure” adjustment because you think that implies no analysis has been performed, call it a cost-based adjustment for condition.

If you opine that cost plus or minus some market derived amount is equivalent to the contributory value, you should have support or at least have a rationale, then summarize that to the reader your the report. This is equally true if you opine that cost is equivalent to the contributory value.

Costs are 100% based on the reactions of market participants, they just aren’t extracted from market transactions of real property. So in that regard they are more “market based” than peer consensus or realtor interviews, which may be based on Skips List of Adjustment Rates circa 1990. Also, an opinion that cost is equivalent to value can have a similar or even higher level of certitude than a qualitative reconciliation.

If you went to the market and extracted a $0 and $30k fireplace adjustment, and you know the cost is $4k, you gonna reconcile at $15k? Cost is one of the best a tests of reasonableness to your other extractions.

Support your adjustments, apply a modicum of analysis, summarize to the reader, and you will have a leg up on half the field.

 

[glenn walker]

A Cost of a repair is a hard $$ fact its also not the same as asking how a market participant would treat it but most often at a higher $$ discount than the actual cost of repair. Kinda like detailing a car may cost me
$150.00 but bring me $1,000 more in a resale. I dont need to go out and compare dirty cars to clean ones to arrive at my answer. YES I know this is not black or white but on smaller cost issue it keeps the appraiser from making up adjustments and teh appraiser has to be able to make a decision about which method used is more accurate. Its like the old joke that every fireplace was adjusted at $1,500 and every pool out here at $10,000 on homes with median sales prices of $800,000

 

[CGinMN]

Again, I am not suggesting appraisers go to any book for their adjustments, cost or otherwise, without performing some additional analysis.

 

[alebrewer]

It seems someone mentioned doing a 'subject to' appraisal instead of CTC - I prefer that. When I was asked to do a CTC, it was always in an addendum - and I really did use the caveat, "The appraiser is not a contractor, and the appraiser's estimated CTC may, or may not, reflect the true cost of repairing said item."

Again, though - everyone has to do what they think is right for them. I know a few folks on the forum would like to think they're the appraisal police - but they're not.

 

[glenn walker]

It seems someone mentioned doing a 'subject to' appraisal instead of CTC - I prefer that. When I was asked to do a CTC, it was always in an addendum - and I really did use the caveat, "The appraiser is not a contractor, and the appraiser's estimated CTC may, or may not, reflect the true cost of repairing said item."

Again, though - everyone has to do what they think is right for them. I know a few folks on the forum would like to think they're the appraisal police - but they're not.

With some its a word game or playing semantics -One believes She is violating USPAP or a form law if she places a C to C in a lower blank grid. So its not about how you arrive at a cost to cure but that its not allowed
in a grid

 

[CGinMN]

It seems someone mentioned doing a 'subject to' appraisal instead of CTC - I prefer that.

Isn’t this for situations where the property does not meet lender guidelines “as is,” so the issues would need to be cured prior closing, with a final inspection made by the appraiser to verify completion? It sounds like in the case of the OP, the “as is” state of the property meets lender guidelines, they appraiser just was asked to account for bath condition. Maybe I’m wrong.

 

[alebrewer]

Isn’t this for situations where the property does not meet lender guidelines “as is,” so the issues would need to be cured prior closing, with a final inspection made by the appraiser to verify completion? It sounds like in the case of the OP, the “as is” state of the property meets lender guidelines, they appraiser just was asked to account for bath condition. Maybe I’m wrong.

Not necessarily. We will generally ask appraisers to do 'subject to' with a CTC on items that will require an escrow holdback for the repairs - with a 1004D final inspection once repairs are done. The repairs don't necessarily have to be SSS (safe/sound/secure) issues. Flooring is a good example. That way we're delivering an appraisal to F/F or FHA that has a C rating (and value) reflective of the completed repairs.

 

[glenn walker]

Isn’t this for situations where the property does not meet lender guidelines “as is,” so the issues would need to be cured prior closing, with a final inspection made by the appraiser to verify completion? It sounds like in the case of the OP, the “as is” state of the property meets lender guidelines, they appraiser just was asked to account for bath condition. Maybe I’m wrong.

Correct the OPs Subject property had a bathroom that was in the middle of renovation and not yet usable and lender could go two ways Subject to Completion or "As IS" with a cost to cure. MY guess is in most cases lender will do a repair escrow hold back to ensure bathroom gets completed - In that case the appraiser would not make an- adjustment against the comparables as the cost to cure assumes bathroom will be completed . On a "AS IS" the non-operational bathroom would be adjusted for by a two prong approach both cost and consideration of market reaction.

 

[Zephyr999]

So you pull a number out your Azz because you THINK (but cannot prove except by speculation) there ought to be some adjustment for the imaginary risk? And EI? for what? Repair men charge what they charge. The cost books include typical costs and labor. EI applies to the first sale of a property...there is no profit to the builder rather it is a repair of a curable functional obsolescence.

Especially in this market...anyone who has already lost 2 or 3 homes by beingoutbid will jump on it.

To account for the incentive that any party would require to take on finishing a project. Terrell, J.D. Eaton's book on litigation discusses how many appraisers don't consider this when buyers do. Two houses side by side, one needs well replaced, priced less for difference...99% of buyers will take the done property because there's no risk of other surprises.
You're just being salty today

 

[CGinMN]

The assumption that market participants require compensation/discount above cost is just as rote as the assumption that cost equals value.