How would you do this?

[Joe Flacco]

I have hundreds of plans and specs. The specifications are not detailed enough to determine if too low or too high. The only way to really measure that is if the builder has an example that sold.

It is kind of detailed enough if they went to an architect first and you are given the pricing set with the pricing breakdown from the contractor, and you get the design plan with specific finishes. But they are usually not at the interior design stage when the appraisal occurs. And this kind of detail only really applies at the high-end. Maybe 5% of home construction.

Most residential construction you don't get anything near enough detail. You typically get $x allowance for this, $y allowance for that.

 

[Joe Flacco]

A faucet could be $50 or $20,000.
Bathroom vanity could be $100 or $20,000.

Very rare when you get specific details like that.

 

[DTB]

You need to do the finished value 1st. If you have no 'as is' comps, you can back into the as is. Subtract cost to complete, all soft costs coming and going, and hopefully a 30% profit. A lot of people don't understand all the soft costs involved in buying, holding, fixing, then selling.
Every property i buy to fix/flip i reverse into the as is value, cause i want to make a profit. I don't need as value to buy it, only to see what finished is. Then subtracting all the cost for my pay no more than value. Flipper makes only 2 mistakes which can eat the profit. You either over pay for the property or you underestimate the rehab cost. Now i say 30% profit of the finished value. Sometime it can be more, or less.
Forget the as is comps, because they can be in different forms of incompletetion, and nobody here can be that good in how much $ wise to finish.
And last of all, only the sharks will be looking at this deal.

I'm a simple man when it comes to rehabs/flips, for every $ I spend, I need $$$ increase in value. My $ comes back and I keep $$ as profit. If that is not achievable, I rework the costs lower (quality wise) and it becomes a rental.

 

[Zoe]

We have a local group - Real Estate investors of Nashville. I used to attend and sometime speak at their meetings, and I found them to be a wealth of information.

Yeah. I mean going out and trying to find sales in similar condition is shooting in the dark for an "as is" value. You and any buyer including the client want to know primarily the "subject to" MV opinion. Including any investor you went to meet with. The motivations will be what will it cost for me to complete it so I can offer a price where I can make a good return on my investment. From an appraisal standpoint on MV, the best way is to back into what a typical buyer is willing to pay for it. They are focused on the subject property and MV definition has many facets to it other than what we are bring up here on a particular subject property.

 

[Zoe]

A faucet could be $50 or $20,000.
Bathroom vanity could be $100 or $20,000.

Very rare when you get specific details like that.

yeah. When you start looking incentives for the buyer, 10% is way more on multi million dollar house than a $250K house. MV focuses on the subject.

 

[Zoe]

Typically motived buyers and sellers.

 

[George Hatch]

A faucet could be $50 or $20,000.
Bathroom vanity could be $100 or $20,000.

Very rare when you get specific details like that.

As a line item cost that's completely true. What you get instead are how many bathrooms and the specs on those fixtures in the plans and then in the cost breakdown that the line item is plumbing fixtures. The working plans show the specs and the cost breakdowns run by category, some more detailed than others.

I've spotted the infamous "contractor's 4x4 crewcab" cost multiplier on many occasions. Bid too high and it cuts into the developer's margin upon resale. Bid too low and they come back for more money before construction is complete. A little leeway is manageable from a lender's fund control ( we were doing those inspections, too) but if it gets too far out of hand it poses an unnecessary risk to the lender.

We always had to be mindful about materials onsite, too; because some contractors would move materials from one project to another in order to evade the appropriate fund controls. If the item hasn't been added to the structure then it isn't counted as completed whether those materials are onsite or not.

 

[George Hatch]

I'm a simple man when it comes to rehabs/flips, for every $ I spend, I need $$$ increase in value. My $ comes back and I keep $$ as profit. If that is not achievable, I rework the costs lower (quality wise) and it becomes a rental.

I've seen a lot of remodelers and builders operate that way. Nobody works for free.

The reason I like to watch the resales is to check on my cost modeling to see if I need to make adjustments. Regardless of their goals at the outset the developers actually make more on some projects that others, depending on market conditions AND upon their initial acquisition costs. If they pay too much for the lot that comes straight out of their profit margin.

 

[TerryRohrer]

For those making a living with this type of investment, risk is real. You can't remodel and repair without surprises, no matter how diligent you are prior to owning a property. Once you start removing the surfaces, invisible problems become apparent. Some will simply cover those up with the new cosmetics, while the good ones will take the hit and do it right. An investor around here who deducts twice his expected repair and marketing expenditures from the expected as-repaired value to determine what he will pay was telling me about one example where they made a purchase only to find out the State had failed to list the property on the meth contaminated property list they are required to maintain. Upon closing, that was his problem. He said even with an expected 50% margin, they broke even. Their profit was education, experience, and exercise...no money.

 

[sputnam]

Full disclosure.... the report in question crossed my desk as a review request. I guess I don't have to say that the appraiser thoroughly mucked it up.