In my market, something like that is almost always sold to a flipper/investor type who will complete the repairs and resell the property (part of your HBU analysis should be to determine the most likely buyer of the subject). The ones I have talked to, and who have been successful over the last several decades, have told me their approach to gauging what to pay for the property in its current condition is first to estimate what they expect to be able to sell it for in the "as completed" state. From that estimate, they subtract twice the sum of their estimated costs to repair the property and marketing costs (realtor commissions, closing, etc.). Doubling their estimated costs provides what we would usually term entrepreneurial profit, plus some provision for risk. The flipper I am most familiar with tells me that even though they are very disciplined in this process, on occasion, they lose money. The most recent example shared was a meth house that was not disclosed and was not on the State's website identifying such known properties. They about broke even on that one.
I have used this as a method to develop the as-is value of properties where the typical buyer would be a flipper/investor. I typically watch these properties (because I have good information as to the before condition and expected repair costs) as they are marketed in the as completed state, and have found this approach to be reliable. If the owner provides you with repair costs (from a contractor, as homeowner repairs usually ignore labor), it might be useful in your case. Finding pairs of sales for an individual property in your market that followed a similar process would help you test this, or specifically calibrate the profit demanded by those buyers in your market.
community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.
