Cost to cure adjustment on the grid?

[J Grant]

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

The assumption should not be rote, it should come from the market.
Appraisers are out in the market every day so should be aware of trends and what is prevalent in the property type/area of subject, and can support it with agent interviews, and by pulling some recent sales of both houses needing repair or in good condition, compare prices, DOM, list to sell etc.
While it may be impossible to find a house with the same subject problem of a half finished bath, usually there are sales needing some repair or replacement to get the feedback from

In this market, as has been noted, often participants expect to discount at all, because inventory is so tight.

In a very stable market, it is more common to see the C2C the same $ as market reaction, because often we see the amount for repair offered by seller as a concession.

In a declining price or over supply market often buyes expect, and get, a steep discount over costs. Above is generalizations, any individual case or market can differ.

 

[Terrel L. Shields]

ne needs well replaced, priced less for difference...99% of buyers will take the done property because there's no risk of other surprises.

That assumes such an option exists. In this market there are not going to be 2 such properties to choose from.

Next a well is an unknown. Will it be 50' deep, 300' or 1,200' - at least here. Before I ever became an appraiser I had calls as a geologist to explain why someone didn't get water. Sometimes it was a geological situation that meant the zone was missing due to faulting. Sometimes the zone was deeper than they anticipated.

But we are talking about a relatively minor repair. LIke I said, you can get a total "Rebath" job for $22k, simple repair? No one is going to set there and go "Hmm...it might cost a few thou more than we think, so we'll allow $9,000 plus 10% for entrepreneurial incentive and an allowance of 10% for risk.... Nope they are either going to pull the trigger or not. It's only a repair of the bathroom, and the concept of cost to cure is well established in the literature which is why USPAP said we need to know those techniques and methods.

The next problem even assuming there is a market impact beyond cost, how do you calculate it? You would need to know the extent of required repairs, the cost and then compare that to the market reaction. How many sales are you going to have? It's a problem we face frequently. If you intend to sell, you want to fix all that so they are not issues in the sale. But the owner who is merely financing...well, he might tolerate some defect or be in the middle of some sort of D-I-Y and didn't fix it. If I put my house on the market tomorrow, I've got a kitchen light out and the dishwasher is acting up, the stove needs replaced. I'd certainly do that before listing. But finding a paired sale of any use whatsoever is something between a fool's errand and hunting a needle in a haystack. What kind of mental gyrations do we resort to that arrives at a defensible number? I can't think of any. C2C is defensible. PFA isn't.