Do it "as is".

[c w d]

So I inspect a POS home that looks like it's a mess of different design styles and materials through multiple "renovations and additions" by the home owner. This one is a real dog. The home owner is nice enough and trying to make due with what he has which isn't much. But, the home has me trying to weasel out of the appraisal anyway I can. I take lots of pictures especially of the missing exterior siding in a couple of places exposing insulation to the element, rotten wood, mildew, damaged ceiling to what looks like roof leaks etc, etc. In the rear of the home the owner has removed a portion of the exterior wall in preparation for building an addition. It looks like this addition is part of the "5 year plan" if you know what I mean. Drywall, plumbing and electrical are current part of the exterior of the home on that portion but, yet still under the roof.

I shoot an email off to my client with all the photos and even mentioning "Engineering inspection" hoping to God that they'll cancel the order. After three days I get a reply: "Go ahead with the appraisal but do it "As is" with cost to cure".

Now, I don't know about you but, when I inspect a home that has lots of problems I can't help but wonder what else is wrong that I can't see. And with a portion of the exterior wall missing I have no idea and don't even want to think about how that can affect the home. In a situation like this without making certain EA's about the condition generally, I want to do these types of appraisals "subject to". I think it should be subject to an inspection. How can an appraiser determine a cost to cure when he/she believes their may be other unknown issues? We all know the realities of the business and we all know that some things can't be known by the appraiser without the inclusion of expert help. I can do this appraisal "As is" even as poor a practice as I believe it to be. But, I have to caveat the appraisal with certain EA's. Hoping that the client doesn't want EA's I shoot another email "I can do that but I have to do EA's and you know FNMA doesn't want us to EA the appraisal. Is this acceptable?"

I'm currently waiting a reply, fingers crossed.

 

[RSW]

I would inform your client that a contractor needs to go in and give an estimate for the repairs and to finish the remodeling and updating due the the potential of unknown defects. You can use that estimate in an as is appraisal with a cost to cure. I would decline the order if they refuse to go that route. Let some Skippy do an as is appraisal with no cost to cure and appraise it $50,000 higher thah it's worth.

 

[Flakey]

Cost to cure = replacement cost for new dwelling of similar size/utility plus demo and site prep of existing structure. Market value = site value less demo.

 

[Mztk1]

You have to CB4 it if you are going to complete it. The lender's underwriter can waive the inspections, put the ball in the their court. But if you are assuming there is no unseen damage and given estimates for what you do see, you would be providing a misleading report unless you also stated you are unqualified and the report is subject to a professional inspector to ensure there is no unseen repairs necessary.

 

[Judy Whitehead (Florida)]

I think we've all had these before and they are horrific to deal with. They probably are not going to make the loan anyway, but you "could" list the repairs that you saw and give a generous estimate to cure (I recommend the M & S book on this subject) and state that the inspection was visual only from a standing height, nothing was moved or removed to do a more thorough inspection, that you are not a building contractor and the repairs are an estimate only, that you are not qualified to make the final determination, etc., etc. and include all of your pictures. Typically, I will adjust in the condition category this "very generous" estimate of repairs needed.

We sometimes get into these types of estimates when doing foreclosure appraisals and you always feel that what "may" be cosmetic may be hiding something like you said - a rotten core. If the condition was bad enough, you could always decline the order until a licensed contractor gives a bid, but that likely is not going to happen.

 

[Fred]

I want to do these types of appraisals "subject to". I think it should be subject to an inspection. How can an appraiser determine a cost to cure when he/she believes their may be other unknown issues?

There are always unknown issues.

 

[Marcia Langley]

I can do this appraisal "As is" even as poor a practice as I believe it to be. But, I have to caveat the appraisal with certain EA's. Hoping that the client doesn't want EA's I shoot another email "I can do that but I have to do EA's and you know FNMA doesn't want us to EA the appraisal. Is this acceptable?"

(my highlight)

CWD,

If the assignment is expected to conform to Fannie Mae guidelines then their minimum property standards would apply, both for CB3 items and CB4 items.

Saying Fannie Mae doesn't want us (appraisers) to HC or EA the appraisal is extremely incorrect. Fannie/Freddie/FHA all have requirements for appraisers to HC or EA the appraisal in certain circumstances. What Fannie/Freddie/FHA doesn't want is for the underwriter to fail to resolve those HCs and EAs prior to funding. That is a very different thing.

 

[c w d]

Marcia, really? Because I swear there is a statement on the 1004 that says specifically that we will not alter or add to EA's already made in the 1004 by FNMA. I personally, don't agree with it and am more than willing to add a few of my own. It is a topic that has been debated at length here on the forum and I'm pretty sure some well respected and knowledgeable appraisers have stated additional EA's are now a faux pas in the FNMA appraisal realm.

Marcia, just so you know, I'm paraphrasing my statement to the client. So don't take the paraphrase's lack of professionalism literally.

Steven, yes, there are always unknowns. But there is a significant difference between a well kept and maintained home with a small plumbing leak that occurred the night before inspection and a home that is obviously lacking an owner who is able or willing to maintain the dwelling. Problems as seen during inspection are a cumulative indication of more and often worse problems somewhere else especially those unseen.

 

[The Warrior Monk]

With appraising, "as is" is always the way to go, unless there is some legitimate reason that the client needs to have it appraised under a hypothetical condition. Appraising is "subject to" because the appraiser finds it to be a difficult assignment is not one of those reasons.

Properties with major issues are bought and sold all the time. Investors will buy such properties without knowing all the issues, but they will pay a steep discount as a result. The price paid is less than the market value as repaired minus costs, because the investor expects to make a profit. The more unknowns involved, the higher risk, and the higher the profit.

The valuation of the property will depend on your market. Maybe the house can be fixed up, maybe the home should be razed. Your market data will tell you that.

 

[c w d]

Dave, I agree, we can appraise anything "as is" but, when there are significant issues which my gut feeling tells me there are most likely more issues unseen and the client wants me to provide a cost cure. I'm left with what I know and a lot of what I don't. And in these circumstances, I find it hard to give what I consider an accurate opinion of value of what that property is worth today as it is.