Good, Average, Fair, Poor

[jt]

4 cents:

The 20,000/sf dwellings may be the average size for the area, however, there is no “average size” for a dwelling. There are rules of thumb based on the date of construction, in estimating an approximate size for that era. In addition, there is nowhere on the 1004 or 2055 to input whether or not the subject size is average for the neighborhood; the input for size should be shown in square feet. If your subject is the only 1,500/sf dwelling among 20,000/sf dwellings, then you need to go outside the neighborhood for comps.

If you want to compare the physical condition to that of the neighborhood, then you need to describe the neighborhood, i.e., most/all of the dwellings in the subject neighborhood are in need of major repair; in this scenario, if the subject was equal in physical condition to the neighborhood, it would be considered “average”[for the neighborhood]. However, without properly describing the neighborhood, and saying the subject is in “average” physical condition, would be misleading.

Unless you cover a very small market or know the physical condition of most of the dwellings in each neighborhood, how would you determine if the subject’s physical condition were equal, inferior or superior to the neighborhood, particularly when you don’t inspect the interior of the neighborhood properties?

I believe you can’t base physical condition by comparing it to other properties in the neighborhood without describing the physical condition of neighborhood properties.

Physical condition goes hand in hand with effective age, and is a very subjective call which is based more on common sense. In my opinion, average in this instance is based on: the ceilings, walls and floors being straight, plumb and are without major defects, and not in need of cleaning/painting; the appliances, fixtures and mechanical systems are clean and operational; none of the short lived items, i.e. carpeting/roof are at or near the end of their life cycle; finish materials are of a generally accepted product of acceptable quality; etc., and poor house keeping would be a personal condition, not physical.

IMHO, average is based on market preference... what the MARKET(the buyer(s) perceives as average(more or less aesthetically appealing). It’s not to say you can’t make the neighborhood inference, but only by describing the physical condition of the neighborhood dwellings and ascertaining they are equal to the subject.

 

[Richard Carlsen]

"jt" has hit it on the head. Good, average. Below average etc are terms for "Condition" in the sales grid and not Design and Appeal. If a well maintained 1500sf Cape COD sit in the midst of all 4000 sf ranchers, that does not make it's condition Below Average. You may comment and adjust for this difference in Design and Appeal but that does not make its condition any less than what it is; good, average, below avg., etc.

 

[airphoto]

Two more cents for the discussion ..

Most properties are 'prepared' for sale in the market place. My terminology is "normally marketable conditon." I tend to adjust, where necessary, to render subject in "normally marketable condtion." Therefore, seldom go more than "average (+), average or average (-)." That's subjective, admittedly, but also defensible as the sales are 'presumed' to have been in normally marketable condtion ..

 

[Larry Lyke]

I'm picking on Richard's post of Fri @ 2:05 pm above:

----- QUOTE:
"I tend to make it more difficult for the UW by using Fair, Below Average, Average, Good, Very Good and Very Good/New."

"These represent the estimated effective ages I assign the properties and I make my adjustments there rather than any age adjustments...."
----- END QUOTE

MY QUESTION:

How does Very Good/New equate to being similar to one another, unless, of course, it's new and very good?

My contention is that very good is a really extra-nice, well-constructed, high-quality house and new is new. They are usually mutually exclusive, not either or. Even a shack can be new!

My point is more at, a new house is more often average than good or very good. And almost never fair. And, new is new.

Arguments sought/accepted.

 

[jt]

And I’ll raise you to 3 cents:

By indicating the subject is anything less than having an average physical condition, you MUST provide a list of discrepancies. We all know that by providing a list of discrepancies is the kiss-of -death, if the client is selling the mortgage. On the other hand, I think the investor would probably like to know, maybe even the buyer; the homeowner, never wants to know that their house is of below average physical condition.

If you indicate the house is of below average physical condition, the lender/client may then want a dollar estimate for a, cost-to-cure and/or a greater down payment from the buyer, in any event, this could/is perceived as a deal-killer. And in all probability, you won’t receive any additional business from this LO, broker/banker, mortgage company, etc... you will be blackballed.

It shouldn’t be this way, but it is. Even the honest appraiser(s) find themself in a quandary, over this. After all, the buyer inspected the property and made an offer based on the physical condition of the dwelling, and it was acceptable to the seller; they/Realtor negotiated the sale... that’s Market Value [not so, for a refi].

Also, it could be a fine line between average and below average(fair), however, we’re being penalized from the client, thereby, by being forced to look-the-other-way. In view of the fact, most residential sales today require/insisted upon, a home inspection... the physical condition of the subject is going to be revealed anyhow. If you indicated in your appraisal report there were no discrepancies and the home inspector indicated there was, not only do you have egg on your face, but you’re setting your self up for a lawsuit.

Appraisers need to be firm, if everyone stuck together, we wouldn’t be blackballed or forced to play devil’s advocate.

Sure, now it takes more time to list these discrepancies(major/obvious) and estimate the cost to cure. However, IMHO, if we want increased fees, we need to put out a superior product, if we don’t someone else will.

Greig, I commend you on calling a spade a spade, however, in this situation, the client specifically indicated they did not loan on property having a below average physical condition. Completing a full appraisal report beyond the scope of the clients requirements, benefits no one. You should contact your client, and indicate the physical condition is below average. If they do not want you to proceed, you should renegotiate your fee, and be compensated for the time spent.

 

[Larry Lyke]

jt -- Amen.

But part of the problem too is the LOs not caring at all how you get that square peg in the round hole.

And the UW being caught between her master wanting her to make every loan and finding a way to do it.

You'd almost think that investors would insist on restructuring the system for better accuracy of information flowing to them!

 

[Richard Carlsen]

Larry

Good, Very Good and Very Good/New are not Qualities of Construction in the sales grid but Condition. As an example, I would use Very Good for a newer house that has been lived in and that is well taken care of. I could use just new but by using Very Good/New, I get fewer UW wanting another similar comp. If a house is above average in construction quality, I will note that in "Quality of Construction". There I tend to follow the M&S lead on quality and make appropriate adjustments.

I think that one of the keys no matter what system you use is to be consistent with your analysis. After all, this data will go into your database for use as comps.

 

[Lee Steidel]

Have to agree with Dave and Barbara. Average is "average for the neighborhood." If you have a house with a one car garage in a neighbor of houses with one car garages, that's average. If subject has a one car garage in a neighborhood of homes with 2 car garages, that's not average.

For all "below average" houses, I list condition as "average" and then note in addendum and grid the costs to cure required to bring condition up to average-- whether repairs, removal of debris, removal of non-permitted additions, etc. and then give client a "value as-is."

I do so many cost-to-cure appraisals I have cloned a cost-to-cure template! Have NEVER received a lender/UW condition on one of these disclosures and my client appreciates the extra effort.

 

[Richard Carlsen]

Lee

Since you are listing the Cost to Cure in the addendum and giving the house an Average in the sales grid, you are making the appraisal "subject to". Is that correct?

 

[Frederick R. Ruffell]

Richard,
Untill recently I always would make my reports subject to when a cost to cure was given. But then a client asked me for a limited appraisal using a 2055 form with an interior inspection. I determined that I could invoke the departure rule and eliminate the cost approach, and still work up an estimate to repair and replace some items AND still express the final opinion of value "as-is". All the client wanted was some idea on how much the known and disclosed deficiencies would cost to cure. Of course it is still the same fee as a complete appraisal as the amount of work is about the same with the interior inspection.