Cost to cure adjustment on the grid?

[alebrewer]

It (market reaction) is most likely significantly higher cost.

Exactly...

 

[Salty]

This would be easy in some areas I work. Put the number as a new line item, then zeroes across the board for adjustments. Buyers here just don't care - they are so desperate. Recent sales show they are willing to pay the same price for a dated home as for a recently renovated one. I finished one yesterday where the 1980's style comp sold for $3,000 more than the recent renovation 3 houses down. 80+/- sales over hast 12 months and only 2 listings. All sales within 5 days.

 

[J Grant]

Whenever a client asks me to do something, I never confuse it as an order. I have never given them the power to do that. They don’t have keys to my office, or passwords to access my PC and signature.

It sounds like OP missed addressing the partially renovated bath in their original report, and at the clients suggestion they are now exploring how to do that with a cost to cure.

A cost-based adjustment is a valid adjustment in situations like this. Costs are market reactions. I don’t see how interviewing realtors or reconciling to the low end of the range is any more reliable than doing a cost analysis.

Costs are not always market reactions. If they were, then a flipper doing a $30,000 remodel would not see it get back $60,000 more in sale price .

Costs are something a well informed buyer would be aware of, but their actions are not always in line with the cost regardless. Some buyers simply will not buy a house needing work, no matter if minor. Others expect a steep discount. Others might want a seller concession equal to the cost. And so on. In today's very tight inventory market, I see houses needing repair or remodel getting high prices that even 6 months ago they never would get - it sells for the same price a good condition house sold for 6 months ago. So in this market, most buyers would not expect, or get, any discount on a repair.

Reconciling on lower end of value ( or in this market, perhaps no adjustment ) is more reliable, or the better word is credible, because it reflects most probable reaction from typically motivated buyers as seen in the market on many sales/feedback from agents etc. Whereas making a precise $ amount adjustment based on the cost is saying you can predict all the buyers on all the comps would have paid exactly that $ amount less.

Many clients on front end are not sophisticated enough to know the difference and might let a cost to cure as the adjustment through,- an appraiser gets no pushback , they think it is ok. Well, we have the different views and reasons for them here.

 

[CGinMN]

So if your adjusted range is $270k to $305k, and your best comp by far is $305k, but you have some unfinished trim work in the bath, you reconcile to the low end of the range… and that is more credible how?

 

[alebrewer]

So if your adjusted range is $270k to $305k, and your best comp by far is $305k

Not discounting the gist of your post, but personally - if this were my adjusted range, and my best comp was adjusted to $305k, I'd be looking for what I missed on the lower adjusted sales...

 

[J Grant]

So if your adjusted range is $270k to $305k, and your best comp by far is $305k, but you have some unfinished trim work in the bath, you reconcile to the low end of the range… and that is more credible how?

I likely would not reconcile it on the lower end in the above specific example. I assumed, wrongly it seems, that whenever I , or anyone suggest something, appraisers understand it is general advice -and may not apply in every situation or in every market.

That said, Unfinished trim work does not even rise to the level of a repair, or merit a cost to cure, estimate, but If I gave it a C 2C estimate, I would explain it is too low $ to affect value

Please see my many posts where I said that in today's hot market, repair issues are not seeing any discount.

 

[Mark K]

I think you could do it either a) condition adjustment or b) separate line item; I think either is reasonable but I've always preferred a condition adjustment. As long as its addressed somewhere I think you'll be good. BTW, I wouldn't specifically call it a cost to cure for an 'as-is' report. Cost to cure implies a 'subject-to-repairs' value. As-is implies the subject in its current condition with a value that includes an adjustment for necessary repairs. A cost to cure implies the actual cost, a written bid, for example; a condition adjustment includes the additional profit demanded by most buyers.

How much you want to adjust is your call. Depending on the repairs, I generally use about 150% of my estimate of the cost to reflect the market reaction. I think a typical buyer would insist on some type of profit when buying into this situation.

However, in today's market and with the number of people that have watched too much Home and Garden TV, they might simply estimate only the cost to repair/remodel (maybe less) and use it without any profit figured in since they get to remodel it to look just like the TV shows.

Side note: If I see one more black and white, new construction, custom home I'm going to puke. Don't these people have any more imagination than this? These ugly things are going to look dated in about a year or two and dated and ugly is not a good combination.

 

[alebrewer]

I've always preferred a condition adjustment.

Or possibly a functional adjustment? If the market demonstrates a clear preference for two functional bathrooms, and the subject only has one, that would be a functional issue, no?

 

[Mark K]

Or possibly a functional adjustment? If the market demonstrates a clear preference for two functional bathrooms, and the subject only has one, that would be a functional issue, no?

I suppose you could. Personally, I think a condition adjustment is more easily understood by most report readers. I also think you'd need to do some matched pairs to determine the loss due to functional obsolescence but then I think you'd need to determine if its curable or incurable. Unnecessarily deep rabbit hole when a simple condition adjustment would suffice in most cases.

 

[J Grant]

The reason a client asks for a C2C estimate on an "as is" appraisal, because they want to feel comfortable about lending as is - if the loan defaults day after closing, was the cost to cure to finish the bathroom, $2000 or $10,000 or $20,000 - if cost is above a certain threshold they might feel not want to lend on it "as is", and might ask it be made "Subject to" repair/completion instead.

The adjustment, if any to make or what to put on teh grid. is up to appraiser. The problem here is the client instructing the appraiser what to do and how to value it.