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Cost to cure

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Alison Swain

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Sep 13, 2005
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Certified Residential Appraiser
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Florida
:Eyecrazy: I've got a doozy I'm working on. Borrower is in the middle of a renovation. There is no kitchen whatsoever. Everything else has been done --- everything. The lender (a credit union) has instructed me to complete the report "as-is" with a cost to cure based on the borrower's estimates for a state-of-the-art kitchen ($150,000+).

This home is golf-front on a very famous course --- overlooking a primo spot where the guy can look out his back door and see Tiger Woods and Vijay Singh taking their putts just 30 years away. There have been quite a few homes which have been completely renovated, so this may not be such an over-improvement.

On the other hand, I've been trying to determine market stability for this market. The comps which have sold in the past year have sold near what the subject sold for 2 years ago. BUT.....all these homes sold in a newly renovated condition.

How do I handle the cost-to-cure on the grid, as well as the issue of market stability considering the dated condition of my subject at the time it sold in 2005 compared to the renovated comps sold this year near the same price? :shrug:

Forgive me; my brain has been growing cobwebs lately --- I'm rusty and foggy. :Eyecrazy:
 

Wendy

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Feb 23, 2004
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Certified Residential Appraiser
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Florida
Just a thought -
Does renovation really have that big an impact in that price range/neighborhood? Or do buyers prefer to have the exotic wood floor match their dog's fur rather than the prior renovator's dog?
 

Alison Swain

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Florida
At the current price point, I think buyers are expecting the renovation/modernization is already done.
 

Michigan CG

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Michigan
Could you appraise it under the Hypothetical Condition that it does have a kitchen using the recent sales and subtract the Cost to Cure based on the owner estimate?

Question I have would the state of the art kitchen be an over improvement for the neighborhood.
 

Joe Milla

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Feb 13, 2007
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Massachusetts
don't you need a functioning kitchen and bath for a dwelling to be habitable? food for thought
 

Alison Swain

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Sep 13, 2005
Professional Status
Certified Residential Appraiser
State
Florida
don't you need a functioning kitchen and bath for a dwelling to be habitable? food for thought

And a very relavent thought it is!

Okay, how would you guys wrap this one up? I want it off my desk today!!!
 

David Dietz

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Oct 30, 2006
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Certified Residential Appraiser
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Florida
I would call the bank and let them know if you appraise it AS-IS you will have to comment no kitchen exists and the home is not functional or compatible to the neighborhood. I would do a subject-to with the current condition reported of course and an estimated cost to cure of the current condition. Just a thought. I have had kitchens under remodel but not unusable. They may baulk at the not functional or conforming comment anyways.
 

Alison Swain

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Sep 13, 2005
Professional Status
Certified Residential Appraiser
State
Florida
I think that's the way to go --- appraise it as-is (as instructed), but non-functional. They're aware of this as the owner is still living in another state and is having this renovation done so that he can move in.

What about the market stability factor? :shrug:
 

Webbed Feet

Elite Member
Joined
Feb 11, 2005
Professional Status
Certified Residential Appraiser
State
Canada
Ms. Swain,

Feeling pressure over a value estimate with comps not showing any appreciation at all for remodeling are we? ;)

Clients, whose staff are clueless regarding appraisal practices, really love to hand out ignorant "instructions" because it is not their signature on the report or license on the line. So I'll remind you that C2C is only part of the formula needed to arrive at a "market adjustment" for what you have. And if that market is NOT all installing $150,000 state of the art (label this vastly over-improved possibly) kitchens, then such a number does NOT result in an opinion of "Market Value" in an as is condition, because that is not what the market would do as per our definition of M.V. ... Right? .. Has your client and you both forgotten one man does not make a market? Would the "most probable" buyer(s) stick a $150,000 kitchen in there?

So unless you and your client have agreed to some sort of EA this $150,000 number "is the market adjustment" I recommend you step back away from those instructions. Besides, I don't think we can start agreeing to EA's of that type regarding adjustments. I really can't stand clients that dump this crap on appraisers. This guy should be getting a signature loan, finishing the damn kitchen, and then having that loan rolled over into a real estate loan backed by a "Subject To" per plans and specs appraisal. Versus asking for appraisal magic regarding uncompleted remodeling in progress to that extent. Then asking the appraiser to plagerize the borrowers numbers because nobody wants to allow the time to obtain independent contractors estimates! But we are stuck with the stupidity. In short, I am saying use your own numbers for an appropriate kitchen for that house, for that market, and then extract your market discount for the "hassle factor" any buyer would charge for having to take over a mess! I am assuming you have no comps sold that way. Well find an old one if possible. As a reviewer I'd say a proven discount, even if from two years ago, is better than a SWAG. If you find one I'd even consider tossing it in with time adjustments if I had to.

Next, I know we analyze past sales. But, we don't have to be mind readers as to why one buyer, with more money than care about market value, over paid for a house needing to be remodeled, just because he had to have it on that one par three! Sometimes facts are facts, and the explaination is "I can't explain the past sale price, of the not remodeled subject at that time, versus the resulting sales prices of the recently remodeled and sold comparable. I can only speculate regarding the motivations of the buyer of the past sale, the borrower, at that time and will not do so in this report. The SOW of this assignment does not call for a retrospective analyses to explain what would be unexplainable any other way." Once in awhile, "I don't know" is an analyses of past sales history! At least as long as you have contacted past parties like agents an end up with "I don't know" for your answer. But the due diligence was performed. If you end up with a well supported analyses that the newly remodeled subject is not worth a dime more than its unremodeled prior sale price from two years ago....... bummer! You were not hired to explain why that is. If they want a retrospective analyses to see if he overpaid in 2005, they can contract for one....

;)

Webbed.

P.S. Yes, the house would not currently be considered "habitable" under any standards I know of. No kitchen = not functional house. I'd like to know how this lender can lend on it? Were you engaged for a construction loan appraisal?
 
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CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
If the CU requires the use of a current FannieForm then you can probably not make the appraisal "as is" because the condition is a deficiency which adversely affects "livability." Since the CU is a CU you probably have to provide an "as is" value because I think they are one of the federally regulated institutions and Statement 10 applies. An "as is" value is required in addition to the HC value. On the other hand, the supplementals implied by the use of the FannieForm will not allow for HC's without a condition for completion.

And in any case, the borrowers opinion of the costs is irrelevant and request for using this figure should be ignored.

For the HC value, you need some sort of plans and specs. Use your data sources for costs, etc.

For the as is value, you don't need to know what they plan to do. You need to develop a value based on what a typical buyer would purchase the improvements in their currrent condition. It might not even represent market value because buyers of incomplete residential properties are not commonly typical buyers.

You have one assignment with two values.
 
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