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Finished basement needs to be unfinished.

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Tom Jennings

Thread Starter
Freshman Member
Joined
Feb 28, 2002
Doing a relocation appraisal "as is". I asked the owner about any moisture problems in his partially finished basement (about 500sf finished). He said that he had just been told that there is some moisture behind the drywall of the currently finished basement. He has an estimate of $10,000 to remove all partitions and remediate moisture ( & potential mold) problems. He plans to leave it unfinished after repairs.

I have one comp with a similar finished basement with no problems, one comp with an unfinished basement, and one comp with no basement. In this subdivision an unfinished basement vs. no basement is +5,000. A finished basement like subject's vs. unfinished basement is +$5,000. Finished basement vs. no basement is $10,000. One way is to put a negative condition adjustment for the market penalty for the basement problem (for our argument, let's assume the market penalty is = to the cost to cure). That would show -$10,000 for "condition" for all three comps assuming all else is equal. Then, just make normal adjustments on the basement and basement finish lines. For example, call the subject a partially finished basement. Make no adjustment for the home with a similar partially finished basement, plus $5,000 vs the comp with unfinished basement and +$10,000 for the home with no basement. What bothers me is that when he spends the $10,000 to cure, he will have an unfinished basement.
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
Tom,

The $10,000 he is spendig is to cure a physical condition, not to add value but keep the value it should have as tho the problem did not exist. It is tough to tell anyone to pay that much in repairs with no increase in value or use. However, what would be the cost in holding time(mortgage payments, etc) if the owner has to wait for a buyer to take the property "as is"? I also know of several instances where money was spent to cure a problem(Radon) at a cost of several thousands of dollars. When the property was "cured" it then sold 10% below the market. Why? Stigma. Everyone heard about the radon problem and the subject became "The Radon House". The fact that it was the only house where radon was no longer a problem did not matter. Market stigma has set in. took years for the stigma to be forgotten in the market.

Don Clark, IFA
 

Frank Bertrand

Junior Member
Joined
Aug 21, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
When an owner cures something and then asks why the value of the home doesn't go up a similar amount I tell him about a 85 Ford that's worth say, $2000. If you put in a rebuilt trans for $1500, the car isn't worth $3500, its still worth the 2000 plus anything you can get out the fact that there is a new tranny. THe owner can grasp that concept, and no problems. good luck.
 

Mountain Man

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Georgia
:D Hey, I like that. Gonna use that one real soon. 8)
 

Frank Bertrand

Junior Member
Joined
Aug 21, 2002
Professional Status
Certified General Appraiser
State
Pennsylvania
remember appraising is 51% an art 49% science.

Communication is part of the art aspect and is very important to Clients, owners. lawyers, other appraisers, etc.

So it goes...
 

Ross (CO)

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
There is nothing to stop some h/o's from believing that every single dollar they ever spent on something at, or for their house, during the term of their ownership, has today some sort of >100% return on that effort. Regular care and maintenance is not what they call. Preserving a present value (by expending a cost to cure, perhaps) is not what they would call it. They consider it to be the progressive "improvement" of the property. Will never forget being handed a detailed listing of every expense this owner incurred over his 5 years of ownership...stapled to the same list the previous owner had compliled for the previous 8 or 9 years...and a grand total $$ amount at the bottom. Somehow I was expected to weave that $$ amount into an enhancement which this property had over the other sales in the neighborhood. The home was average, and had an appraised value so very much like all his neighbors. But, at least he tried.
 

G-man

Member
Joined
Feb 4, 2002
Professional Status
Licensed Appraiser
State
Ohio
From personal experience, I feel this owners pain. After paying $3000 to brace two and 1/2 basement walls, I ended up reducing my asking price for my home, take less than that just to get out of the home and purchase a larger house, and the purchasers still bail out two weeks after signing a contract when their home inspector doesn't like the basement :eek:nfire: Guess it's refi time and make due with what I have. Fixing a problem just does not automatically increase the value of the home.
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Two things come to mind.

One, most water problems I've seen are best cured from the outside where the water comes in. Most of the time, it is a simple grading problem or getting rid of a poorly place concrete patio.

Two, why are you doing a hypothetical appraisal on an existing house for a relocation appraisal? The basement is finished so why are you assuming in the report that it is not finished? If this is an "as is", then you have to consider the basement finished with appropriate adjustments and then consider the water condition as physical obsolescence.

And $10,000 sounds like a bit much for water control that you could not see or notice.
 

Steve Owen

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
Richard's right. However, remember that the re-lo people will want an adjustment for the problem. Also, real estate regulations will most likely require disclosure of the problem. This one is tricky: the market may not demand a reduction in price equal to the cost to cure (because the problem is not noticeable) however, the market will almost certainly deman some deduction. I'm still scratching my head about this one; you might want to call for another estimate on fixing the problem.
 
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