Fixing a stripped-down house (no bathroom/kitchen...) to enable appraisal?

[degemermat]

Hello appraisers community,

I am a prospective buyer of a house in San Francisco. The house is in good structural condition. The owners bought a year ago, gutted the kitchen & multiple bathrooms, and removed the heating furnaces (several individual units through the building), then gave up on their remodeling plans. They are now struggling to sell because it won't appraise and would require a construction loan. They are considering a full remodel - which would take time and money, but make the sale easy.

My question: instead, would it be possible to do an extremely basic fix of the place (e.g. sink / stove in the kitchen, shower / toilet / sink in one bathroom, reinstall the furnaces, using the cheapest fixtures) at a minimal cost, to put it in sufficient condition for appraisal, then seek a conventional (jumbo in this case) mortgage? My plan would be to work with a lender ahead of time to make sure they are ok with this (i.e. they won't be surprised by the appraisal). The goal would be to get appraisal as-is (with cost to fix) and avoid "subject to repairs".

I'd be grateful for any feedback on whether this is feasible, and what the risks are.

 

[Russ Kitzberger]

Hello appraisers community,

I am a prospective buyer of a house in San Francisco. The house is in good structural condition. The owners bought a year ago, gutted the kitchen & multiple bathrooms, and removed the heating furnaces (several individual units through the building), then gave up on their remodeling plans. They are now struggling to sell because it won't appraise and would require a construction loan. They are considering a full remodel - which would take time and money, but make the sale easy.

My question: instead, would it be possible to do an extremely basic fix of the place (e.g. sink / stove in the kitchen, shower / toilet / sink in one bathroom, reinstall the furnaces, using the cheapest fixtures) at a minimal cost, to put it in sufficient condition for appraisal, then seek a conventional (jumbo in this case) mortgage? My plan would be to work with a lender ahead of time to make sure they are ok with this (i.e. they won't be surprised by the appraisal). The goal would be to get appraisal as-is (with cost to fix) and avoid "subject to repairs".

I'd be grateful for any feedback on whether this is feasible, and what the risks are.

There are lenders out there for all sorts of scenarios. You can even find hard money lenders (perhaps some banks as well) who will do both the as-is and as-completed lending. You just need to decide what you are looking for and find a lender that matches up to it.

The risk of fixing up the place is that if the seller isn't able to convey the title, or you cannot close the deal you may be out of luck and they will be left with a habitable property. You can work with an attorney to mitigate risk. Finally, If the temporary finishes are not inline with the marketplace you may be doing things twice just to save some interest rate over a hard money or another renovation loan.

 

[Trihard]

Hello appraisers community,

I am a prospective buyer of a house in San Francisco. The house is in good structural condition. The owners bought a year ago, gutted the kitchen & multiple bathrooms, and removed the heating furnaces (several individual units through the building), then gave up on their remodeling plans. They are now struggling to sell because it won't appraise and would require a construction loan. They are considering a full remodel - which would take time and money, but make the sale easy.

My question: instead, would it be possible to do an extremely basic fix of the place (e.g. sink / stove in the kitchen, shower / toilet / sink in one bathroom, reinstall the furnaces, using the cheapest fixtures) at a minimal cost, to put it in sufficient condition for appraisal, then seek a conventional (jumbo in this case) mortgage? My plan would be to work with a lender ahead of time to make sure they are ok with this (i.e. they won't be surprised by the appraisal). The goal would be to get appraisal as-is (with cost to fix) and avoid "subject to repairs".

I'd be grateful for any feedback on whether this is feasible, and what the risks are.

No one here knows your market or has seen the house. Also you need a lender that deals with these sort of properties. I would hire an appraiser that works your market, have them walk through the house and then have them give you an opinion. If you cheaply fix the house it is possible that the property will not be to market standard and the appraisal will be made subject to anyway. Or if you only put one full bathroom in and for the neighborhood two full bathrooms is standard. All these questions and probably 100 more should be directed to your local appraiser.

 

[Sadie]

Agree that I would double check with an appraiser what would constitute a minimum condition rating required for lending and also check with the lender. Even if you make the house livable, it still may not meet the lenders minimum standards for condition. I think it is an idea worth exploring to see if it is feasible.

 

[Tom D]

why not do a 203k FHA rehab loan, and do it the right way. you only have 1 settlement, and you will have what you really want.
you also might not realize what is involved in what you want to do, even in a very minimal way. do you realize that you have to get permits from L&I to do that work. how long will that take in your very progressive city to get started, and then to get the completed inspections. if i'm the owner, go ahead and use my plans and spend your money. oh wait, my approved plans will not work for your ideas, and the city will probable want more better that you minimal thoughts.
i'm not sure you are seeing the bear trap that your foot is about to step on. i wouldn't do what you are thinking, and i have done it all.

 

[glenn walker]

why not do a 203k FHA rehab loan, and do it the right way. you only have 1 settlement, and you will have what you really want.
you also might not realize what is involved in what you want to do, even in a very minimal way. do you realize that you have to get permits from L&I to do that work. how long will that take in your very progressive city to get started, and then to get the completed inspections. if i'm the owner, go ahead and use my plans and spend your money. oh wait, my approved plans will not work for your ideas, and the city will probable want more better that you minimal thoughts.
i'm not sure you are seeing the bear trap that your foot is about to step on. i wouldn't do what you are thinking, and i have done it all.

203-K not going to work in San Francisco -- even a fixer is well into the 1.5 Million range : ) LMAO

 

[JTip]

You need a construction loan.

You are thinking you can get a 'good deal' at a 'low price' since the home is not complete. You will waste 100% of your money putting in a crappy kitchen and bath that will be torn out in the future. Besides that, there will be no comparable sales of partial constructed homes with crappy kitchens and baths.

A textbook square peg/round hole example.

 

[Mark K]

My suggestion is to talk to a local or regional bank about doing an 'as-is' loan and then re-fi when complete. Local banks are more flexible than the TBTF banks.

Doing the temporary 'band-aid' fixes you suggest is a waste of $$ in my opinion.

 

[glenn walker]

Ty

My suggestion is to talk to a local or regional bank about doing an 'as-is' loan and then re-fi when complete. Local banks are more flexible than the TBTF banks.

Doing the temporary 'band-aid' fixes you suggest is a waste of $$ in my opinion.

Local banks in CA will only deal with it-- if you are a wealth client with substantial deposits and assets, and you have to have a clear title to the property. If you don't own the property it's very risky to spend time and money on a home where the owner didn't have enough horsepower to finish his or her-remodel. This is a classic example of an-owner who may have gutted it and also owes contractors money and their could be mechanics liens and other issues clouding the title. Worse is what if you put it back together and the appraiser comes out and comes inbelow sales price. A cheap Home De-Porter Kitchen and Bath update may not fit in with what buyers expect to get in that neighborhood.

As investors we have dealt with every dirt bag in the world, and one poor guy did what you are trying to do and after he had spent $40,000 +/-getting the baths and kitchen and repairs done, the owners moved back in and told him to go pound sand. He had to sue them but after 9 months of legal fees and games the owners played he used up over $30,000 in legal fees and he finally gave up and ate the $40,000 and wrote it off as a loss.

During Covid-19 one of the newest scams in CA is to sell a home and then not move out after it closes escrow. The previous owner in CA is not considered a vagrant and the police or Sheriff will not remove him. The new owner has to file an-eviction and most eviction courts in CA are closed and new Federal and CA State eviction laws are in place for many more months and may be extended again when they come due.

Basically I highly recommend you don't do any work and move on in life. If this was a great deal there are lot of cash rich investors in San Francisco and the Bay area who don't need to get a loan and they would be-all over this property like white on rice. Right now there are a lot of predators stalking the herds, especially in Shaky Town (AKA) Los Angeles and probably even worse in San Francisco and the Bay Area. Just Saying : )

 

[KONA]

Glenn, very sage advice !!