House with no heat on 2nd floor

[Kylah]

I used to appraise years ago, took a break to raise kids, and I’m now back at it after over 10 years away since this spring. So I’m basically new at this. Recently I had an assignment for a home equity line of credit. The house is mid-renovation with a lot already done. The problem is the owners have removed their gas furnace heating system, and they intend to use their equity to replace it with a split HVAC system. In speaking with my office peers, they said to complete the appraisal subject to heating installed. Well the lender will not accept a subject to appraisal, and the owner has been texting me to please resubmit the appraisal as is. Is there any way to submit this appraisal as is with no heat???

 

[TerryRohrer]

Well, your working for dummies! In order to complete the appraisal "as is" you have to estimate the impact on value from not having a heating system installed. Not only will that turn away many buyers, but will also preclude financing from many, or even most, sources. Since it is to be as is, the impact on value from all other undone aspects of the home must be treated the same. Short of having a comp in identical condition, you will have to improvise. Successful flippers in my area tell me they determine what to offer on a home by first estimating its value as if all issues had been addressed. They then estimate the costs of addressing all those issues (relying on other's labor, not their own "free" labor), and the costs associated with reselling the completed dwelling. They then deduct twice the sum of all those expenses from the expected sale price at completion. The difference between the sum of their purchase price plus costs and the selling price is what they expect to profit (entrepreneurial profit, if you will) from taking the risk and tying up their money. The good ones tell me this works on average, but does not ensure an individual flip will be profitable. Like appraisers, they sometimes cannot see what is behind the walls and deficient. So, in your shoes, that is the route I would take. And since all parties really want you to ignore the facts and make their positions work, I would not estimate lightly on expenses.

 

[CCAAMO]

It's a health and safety issue but the lender on a conventional can still order the appraisal "As Is" So 1. disclose its a health and safety issue; 2. Make an adjustment that reflects the market reaction for a home with no heat or cooling, not just the cost to cure

 

[Terrel L. Shields]

Well the lender will not accept a subject to appraisal, and the owner has been texting me to please resubmit the appraisal as is. Is there any way to submit this appraisal as is with no heat???

Just do the cost to cure and go on. Give them an "as is" number.

you have to estimate the impact on value

Yeah, show me the sales that support such an impact. We all "believe" that is the case but no one has ever seen it. So it becomes a unicorn mythical adjustment to punish cost to cure worse. Find me the paired sales demonstrating that you can tie down an additional deduction for some minor item. Show me some paired sales (s like in more than one) where a couple thousand for a couple of mini-splits can be extracted from dissimilar houses. Gee you can buy mini's for under 1k.

So once again I ask the question I ask so many times. WHO IS THE LENDER? Is it secondary market like FHA? Fannie Mae? or is it simply an in-house bank? Almost all appraisals for non-secondary market require an "as is" value even if you do the "subject to" value. So you should check with the lender and see. 100% of bank work I do is small community banks. And they invariably want "AS IS"- in fact, the IAG (Interagency Guidelines) require it. When they tell you "conventional" they need to explicitly tell you what kind of report they want - one for FHA? Fannie mae? or "in house".... and none of my in-house lenders require UAD or Fannie forms, and I never used them when I did form reports. And all my bank reports now are narrative.... in house banks don't care for the most part.

 

[CCAAMO]

As the OREA stated, if you say you cannot determine the value of say solar panels due to lack of data, the fact that you valued it at zero means you still gave it a value. I think common sense tells you if a house sold without heating, the number of possible lenders is reduced and the buyer would need to have additional $ to install it which lowers the number of possible buyers so most buyer's would want an discount in price exceeding the cost to cure

 

[Terrel L. Shields]

you still gave it a value. I think common sense tells you if a house sold without heating, the number of possible lenders is reduced and the buyer would need to have additional $ to install it which lowers the number of possible buyers so most buyer's would want an discount in price exceeding the cost to cure

prove that with paired data. Any in house lender would not think twice about it. It is only an issue with secondary market....and small banks make about 50% of all loans you know.

 

[CCAAMO]

I didn't say no lenders, i said a reduced number, and most out here would not. The are many other ways to determine an adjustment other than matched pairs. The question is what would be the typical buyer's reaction, not the lenders

 

[Kylah]

I used to appraise years ago, took a break to raise kids, and I’m now back at it after over 10 years away since this spring. So I’m basically new at this. Recently I had an assignment for a home equity line of credit. The house is mid-renovation with a lot already done. The problem is the owners have removed their gas furnace heating system, and they intend to use their equity to replace it with a split HVAC system. In speaking with my office peers, they said to complete the appraisal subject to heating installed. Well the lender will not accept a subject to appraisal, and the owner has been texting me to please resubmit the appraisal as is. Is there any way to submit this appraisal as is with no heat???

While no heat is the main issue, I failed to mention this same home has a full bathroom that is non-functional due to being torn apart for renovation. The owners are living in and renovating as they go. They do have 1 functioning full bath. If I change the appraisal to “as is”, do I put 1 or 2 baths on the grid?

 

[Sadie]

Just do the cost to cure and go on. Give them an "as is" number.

Yeah, show me the sales that support such an impact. We all "believe" that is the case but no one has ever seen it. So it becomes a unicorn mythical adjustment to punish cost to cure worse. Find me the paired sales demonstrating that you can tie down an additional deduction for some minor item. Show me some paired sales (s like in more than one) where a couple thousand for a couple of mini-splits can be extracted from dissimilar houses. Gee you can buy mini's for under 1k.

So once again I ask the question I ask so many times. WHO IS THE LENDER? Is it secondary market like FHA? Fannie Mae? or is it simply an in-house bank? Almost all appraisals for non-secondary market require an "as is" value even if you do the "subject to" value. So you should check with the lender and see. 100% of bank work I do is small community banks. And they invariably want "AS IS"- in fact, the IAG (Interagency Guidelines) require it. When they tell you "conventional" they need to explicitly tell you what kind of report they want - one for FHA? Fannie mae? or "in house".... and none of my in-house lenders require UAD or Fannie forms, and I never used them when I did form reports. And all my bank reports now are narrative.... in house banks don't care for the most part.

There are some properties that have no heat and they all say in the comments that the property will not finance as is.

 

[Sadie]

If you are doing this on a 1004, you have to comply with Fannie/Freddie. Does it get below 50 deg? If so, a heat system needs to be in place. Is the whole house done except for the HVAC? It doesn't sound like it. You have one complete bath, can't count the other except as a roughed in bath. Your lender may want an as is appraisal, but the result may not be what they expected. If you have a functional home on the main floor, you could appraise it with the second floor as non living area. If you do the appraisal as is, find the homes with no heat and figure out what the discount is for lack of heat. its not just the installation of the HVAC, its also the market reaction to that. A lot of mental gymnastics to figure out what to do. Its probably too late to say, no thanks, don't want this assignment.