"cost To Cure" Disclaimer Wording.

[CANative]

I did one recently. It was one of those properties where no one particular item could be blamed for calling the property "below average." In the addendum I stated that I wasn't a contractor, etc. and gave a list of those readily observable items which I considered in making my characterization of the property as below average.

The cheesy C*nt*x LO called all pissed off and wants me to contact the HO and tell him what he specifcially needs to do for me to call the property "Average."

I don't particularly want the responsibility of giving a HO specific details on what amounts to a more or less subjective opinion. Besides, it's not me making the loan and I feel the lender's UW should tell the HO what they want to see in a property... not just a word in a box from the appraiser. This puts the appraiser in the position of tacitly rejecting or approving loans.

 

[SmilingDog]

This is what I write:

UNLESS OTHERWISE STATED IN THE APPRAISAL REPORT, THE APPRAISER HAS NOT INSPECTED, NOR CAN ASCERTAIN, THE CONDITION OF THE ROOF, STRUCTURAL, FOUNDATION, FLOORING, ELECTRICAL, PLUMBING, HEATING AND COOLING, GAS OR OTHER MECHANICAL SYSTEMS OF THE DWELLING. A LICENSED BUILDING CONTRACTOR SHOULD BE EMPLOYED TO INSPECT AND DETERMINE THE CONDITION OR ADEQUACY OF THESE SYSTEMS SHOULD THIS BE REQUIRED BY THE LENDER CLIENT. THE APPRAISER RESERVES THE RIGHT TO MAKE CHANGES OR AMEND THIS APPRAISAL OR ITS FINDINGS, INCLUDING THE OPINION OF VALUE, SHOULD A CONTRACTOR OR HOME INSPECTOR REPORT BE PROVIDED WHICH WOULD INDICATE SIGNIFICANT CONDITIONS THAT WOULD AFFECT MARKET VALUE OR MARKETABILITY OF THE SUBJECT PROPERTY. THE APPRAISER IS NOT AN EXPERT IN THE DETECTION OR IDENTIFICATION OF ANY HAZARDOUS WASTE OR TOXIC SUBSTANCES THAT MAY BE PRESENT IN THE SUBJECT DWELLING, ON THE SUBJECT SITE OR NEAR THE SUBJECT PROPERTY. THE APPRAISAL ASSUMES THAT THERE ARE NO HIDDEN OR UNDETECTED CONDITIONS (EITHER PHYSICAL OR LEGAL) OR DEFECTS THAT WOULD SIGNIFICANTLY IMPACT THE OPINION OF MARKET VALUE.

I include this in the addenda.

 

[Mark K]

My standard quote is something like this (explaining the condition adjustment):

"The condition adjustment is a reflection of the local market's reaction to the (repairs needed/deferred maintenance/updates required). It is not to be considered a cost to cure the deficiencies and is merely this appraisers estimate of the negative effect on the market value. If an accurate cost to cure estimate is required, the client is advised to contact the appropriate contractors for repair bids, or for an additional fee, the appraiser will make the necessary contractor contacts and solicit bids."

The number I put in for the adjustment is a nothing more than a 30 second guess, lets see, roof: $7,500, windows, $10,000, paint and carpet, $5,000. Total $22,500. Add in profit, new total $30,000. These numbers are in my files only, not in the report. Condition adjustment: -$30,000.

Its worked well for me for quite a few years so far. A couple of times I've been told the adjustment was too high. I told them to get bids and we'll see. Never heard from them again.

 

[Steve Owen]

What I don't understand is why appraisers should be expected to be able to calculate what a contractor is going to charge to do remodeling or repair work!!! Let the contractor do it.

Dave, IMHO the reason the appraiser is required to do this is because the client wants it. For "as is" appraisal of a property with deferred maintenance, if it is going to the secondary loan market, most clients will require the appraiser to estimate cost to cure. If you don't want to do that, you don't have to; your option is to decline the assignment (unless you can get the client to agree to something less than what they ordered).

 

[Jo Ann Meyer Stratton]

I use the following statement in my addendum for REO properties where the client insists on be provided with costs to repair. I do not use any pre-printed REO addendums because I prefer to write my own.

"The appraiser is not an expert in the field of building construction and actual costs may vary from those provided below. Repair costs and opinion reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building/plumbing/electrical contractor. The following estimated costs to repair have been provided at client's request:"

 

[Mr Rex]

I like Jo Ann's comments but have a lingering question. If we are using comparable properties in similar condition, are we required to detail repair costs? Particularly if the client doen't ask for it. Obviously a 1004 calls for more detail versus a 2055, but when is a Cost to Cure required and when is it not (or a better question, when should it be included if not specifically requested by the lender?)

 

[Otis Key]

Michael - your sales that you use are "Just like" the subject - in other words, you know that the sale 1 is exactly like sale 2 which is exactly like sale 3 which is exactly like the subject?

You can say for a fact that all 3 or 6 or 9 sales require the exact same dollar repair and need the same repairs made? We attempt to find sales as similar as possible, but not all sales are the same. As such, you're going to have sales that are in better shape and sales that are in inferior condition to the subject. If you're not going to estimate the cost of the repairs, then how are you going to be able to made a condition adjustment and then make a convincing summation and correlation?

In cases where I feel the property needs minimal repairs and work to bring it to market condition I make a statement similar to "cost of repairs are estimated not to exceed $1,000 (or some amount) as performed by a licensed contractor."

 

[jay trotta]

good answer's all; JoAnn gits my nod for content;

Michael, has provided the "key" elemint - ifn yer comps. are reflective of the "subject" - the cost to cure should become irrelevant (in real people terms) - problem is UW's are not "Real People" - why, because they are lead everyday to and from their work position. The need to provide a cost to cure is truly unrully.

I use language similar to JoAnn's, and I've posed the question to various Lenders over the years; the most often returned answer, when you provide the COC - they can hold out 1.5 times that amount in escrow until the works finished.
Problem I've always had, ifn yer compin the subject out to similar dwellings that need equal amounts of work, why are they hitten the public "Twice" OR double dippin :question: the "Market" has already taken into account the "Cost To Cure" as noted by the "Market Reaction" to similar based products.


h34r:

 

[Kate]

Originally posted by Eric Bishard@Sep 17 2004, 12:17 AM
I can accurately estimate the cost to replace a roof. Pretty simple measurements and a call to a roofing contractor will do the trick.

But!!!

I had my roof completely replaced this year.

Six quotes using the same materials.

quotes were between $10,000 and $25,000. SAME MATERIALS

We settled with the $17,000 roof. Does that mean that the cost to replace the roof was $17,000 for appraisal purposes???

$17,000 was not the median quote.

I could have gone with the $10,000 but didn't like the guy. I'm SURE it would have been a crap job.

Any yahoo can call a contractor. Problem is all the yahoo contractors. IMO.

Do you really want to take the responsibility?

 

[Charles Drecksler]

Dave,


"The appraiser is not an expert in the field of building construction and actual
cost may vary from those provided. Repair costs and opinions are subject to
future revision based on new repair estimates and evaluations by a licensed
building contractor / general contractor / home inspector."

Hope this helps!


Charles L. Drecksler
Drecksler & Associates, Inc.
www.RealEstateAppraiser.com