Latent Defect Discount Question

[John Adams]

I am appraising a 10-year old townhouse and the rear facade is now allowing water penetration due to inferior construction. Most of the 13 houses in this HOA have the rear wall defect which has only became obvious in the past few years. Cost to replace wall and finishes is ~$25,000. Small builder long gone and insurance won't pay. Owner has appealed tax assessment asking for reduction based on wall repair cost. Assessments based on 100% market value of recent sales.
On one hand, the defective facade is a form of curable physical depreciation. Just like a roof replacement or HVAC replacement, the owner pays out-of-pocket to repair/replace the item and does not get an assessment discount for that year. On the other hand, if the owner wants to sell the house with a defective item, then the price is reduced.
Should there by a short-term (two year) value discount? I feel like I am forgetting to factor-in something.

 

[J Grant]

Are you doing a market value purpose appraisal? (or some other purpose )
Who is your client?

 

[John Adams]

Market value appraisal

 

[J Grant]

If it is market value has nothing to do with tax appeals or such...MV is opinion of what it would transact for ...which means as you noted, buyers look at it like they would a roof needing replacement or any other large $ defect they will need to take care of,

Whether the 25k estimate to repair is the adjustment or market reacting differently means an adjustment higher or lower... any recent sales or listngs of the subdivision townhouses ?, RE agent input, etc...but the fact that buyer will have to spend 25k to cure would be part of an informed buyer offer

 

[John Adams]

No listings or sales in HOA since defect found in past two years.

 

[Meandering]

Does the county have the standard EA that condition of all the properties for assessment is "average", until there becomes structural issues that are known to impact the ability to repair to average, and or impact the ability to be habitable for more than X time?

hint, hint.





.

 

[J Grant]

If owner wins appeal to get taxes reduced based on over assessment and can prove to tax board their value declined, good for them . Which has nothing to do with MV for the appraisal. What does that have to do with a 2 short term 2 year value discount...?

Imo appraiser should be concerned is there other hidden damage or mold, has this water penetration been allowed to go on for 10 years? The owner never saw fit to fix it ? Make it subject to inspection perhaps,?? Something feels "off",,,,either about the owner, the assignment, or the issue....

 

[Pittsburgh Pete]

No listings or sales in HOA since defect found in past two years.

You might reach out to real estate agents/brokers active in that area and get their thoughts on the situation.

 

[John Adams]

@ J Grant. The assignment is uncommon because it is an escalated tax appeal with attorneys for each side; and I am hired to give them an independent opinion of value which could turn into a non-jury trial if the two sides cannot settle it. The owners have been proactive about the leak. It has only been noticed this year since we have had 3X more rain then previous years. They and their neighbors got together to choose one contractor to fix all that need it. So the appeal and the repair are proceeding in a timely manner, but both are slow processes. My scope is to appraise it As-Is, thus no subject-to.

At this level of appeal, assessments are based on market value using the sales comparison approach

 

[George Hatch]

So if the question is to demonstrate the effect on value of a defect with a cost-to-cure of $25k, and you don't have any direct comparables from the project to demonstrate that effect then what? Give up?

No, you go elsewhere to find "fixers", compare their acquisition prices with the sales of otherwise comparable properties to see how the market reacted to the costs and use those as the basis of your adjustment for your dataset.

Just like doing a land sale analysis to identify the effect on value of larger/smaller lot sizes, or looking for properties with fresh remodels to identify the effect on value of the remodel, and so on.

If any lay person could do it then they wouldn't need to call in an expert (you) to do it for them.