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Deferred maintenance / REO Property

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I am appraising a REO property with big time problems in the basement level. Appraiser's are not home inspector's and this is the reason for my questions. My 10 years past experience in the home improvement industry along with about 15 years of appraising, usually can figure fairly accurate estimates for cost to cure. But this is a different situation.

The basement level had a few areas with falling down ceilings. I am not sure of the cause or the source of the problem. However, I am assuming some leaky bath pipes from above (1st level of house had 10 rooms with 4 bedrooms and 3.5 baths). The basement level also had mold presence in a few areas. The basement level of this house was VERY LARGE (4,941) with almost the entire level being finished (2 kitchens, 2 baths, 3 rec rooms, and a game room). An interview with a local professional realtor (familiar with house) told me that the house also had water seepage on the west foundation wall. She was not sure if the issue was corrected.

Considering I will be recommending for four inspections (home inspection, plumber, electrician, and waterproofing), how would one break down the cost to cure without the results from the recommended inspections. My first thought was to make on large allowance adjustment and to reserve the right to alter my opinion of the cost to cure depending upon the out come of the recommended inspections. This is the 2nd foreclosure on the property. This house sold as a foreclosure property about 5 years ago for $941,000. I am suspecting the house had issues back at the time of the past transaction that were more than likely, not cured.

Any of you experienced REO appraiser's out there have any other suggestions about figuring a cost to cure? Keep in mind, were are not experts for inspection mold, electrical, leaky piping (plumbing) or waterproofing. Any suggestions will greatly be appreciated.
 
Does the removal of the finish in the basement adversely affect the marketability? I would introduce the cost of basement finish removal, but not return the finish. I would adjust for what a typical buyer/investor would do. Profile the buyer of your subject. It may not be a typical buyer and an investor may be the only person to acquire the subject. I have done two REO recently and in both reports I adjust for the removal of finish in the basement for the same reasons. There was damaged by moisture and by humans.
 
You may want to shy away from any cost to cure until all the inspections are done and submitted by those folks. We generally don't use any home inspector's because of all the disclaimer's they use. I had an appraiser and realtor that had a cost to cure on a basement at $4500.00 and the money was escrowed. They told me I didn't know what I was talking about when I advised to keep the cost out until you had an estimate from a professional contractor.

My second trip out for the final inspection, I found out that they each had to come up with an extra $7500 for the basement. Unless you are looking at a window or door, but foundations, possible large electrical and plumbing issues let the contractor make the judgment and put it on paper.
 
Kevin,
The basement level had two functional baths and two functional kitchens. None of these areas needed work. Would you still call for removal?
 
When I do my REOs, or any property in a similar situation, I base it on what the form says at the very last box to check off under the appraisal is made...it reads:

"subject to the following required inspection based on the extraordinary assumption that the condition or deficiency does not require alteration or repair".

I then estimate it to cure based on cosmetic improvements and items that need repair that I can see (like the limiting conditions state). Make caveats throughout. State the value is pending the results of inspections by qualified professional and a separate valuation may be necessary depending on the results of the inspections.

That's it. The lender doesn't really care. You just have to cover your butt. Normally, their report is for pricing and if they cost far exceeds what was anticipated by your report, they use that report as a benchmark and work off of it to set the price themselves, so you don't hear back. At least that has been my experience.
 
Who's you client? What's the SOW?

Some clients require you to estimate the cost NO MATTER WHAT!
 
If you believe the condition of the basement where the damage exist could adversely affect the health of an occupant. I would move forward with the removal of the finish adjustment.

A knowledgeable buyer would use the damage as negotiations. The damage could also create market resistance. The presence of mold may invade other finishes. If there is a warm air furnace or central air, the delivery system can easily be infected. The moisture must be removed first and then a second inspection in respect to the frame and the structural integrity can be reviewed.
 
If you want to be recognized as a good REO appraiser, your abilities to define and discuss defects and deficiencies must be presence in your reports. The values must also be reasonable and sell within the preferred maximum of 120 days.

Most REO service providers measure appraisers between the market values in the REO Addendum and the future sales price. I have been told the REO service providers could loose an account if the sales price is greater than 10% less than stated in the REO Addendum.
 
Hi Ottis,

Who's you client? What's the SOW?

Some clients require you to estimate the cost NO MATTER WHAT!

The SOW is four values.
1) As is typical marketing time
2 As repaired typical marketing time
3) As is for quick sell (90 days or less)
4) As repaired quick sell (90 days or less).
 
Hi Kevin,

If you believe the condition of the basement where the damage exist could adversely affect the health of an occupant. I would move forward with the removal of the finish adjustment.

A knowledgeable buyer would use the damage as negotiations. The damage could also create market resistance. The presence of mold may invade other finishes. If there is a warm air furnace or central air, the delivery system can easily be infected. The moisture must be removed first and then a second inspection in respect to the frame and the structural integrity can be reviewed.

This house has a total of 5 furnaces with 4 located in the basement and one in the attic level. The house also has 5 central air units. The mold presence was found in a few areas, however, one cannot tell what is lurking behind walls. Would you call for the replacement of all of the furnaces/central air units?
 
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