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New condition property with damaged flooring "as is."

maugust

Thread Starter
Freshman Member
Joined
May 22, 2009
Professional Status
Certified Residential Appraiser
State
Maryland
Hi,

I completed a condo conversion recently. A row house in Washington, DC that was converted into four condos, and thoroughly renovated. The property is in similar condition to new construction, except for one thing. Tile flooring in two places was damaged and in the process of being replaced at the time of my inspection. I completed the report subject to the repair, and provided an estimated cost to cure. However, the client has come back and requested that the report be done as-is because the damaged flooring is not a health and safety concern. They suggest making a straight adjustment across the board in the sum of my estimated cost to cure. I believe that this would not be a supported adjustment. It presumes that cost is equivalent to value, which is not the case. The actual impact of marketing a property that has been thoroughly renovated and is in new condition, but has damaged flooring cannot be proven by the open market, because it would take extraordinary circumstances for anyone to attempt to market a property in good condition without repairing the damaged flooring. And thus, no such comparable properties exist to extract a supported adjustment.

How would you handle this request?
 

Mark K

Senior Member
Joined
Jan 27, 2004
Professional Status
Certified Residential Appraiser
State
Indiana
When faced with similar situations, I've adjusted about 125- 150% of the actual/estimated $$ amount of the of cost to cure. Example: $7,000 cost, $10,000 adjustment, +/-. This covers the hassle and any profit margin (or entrepreneurial incentive) for the PITA of assuming the responsibility of making repairs.

If its a minor repair, under say $1,000, $4$ adjustment.

As long as the estimate is reliable, the adjustment should be reasonably supported.

Keep in mind that some minor cosmetic repairs may be hiding significant damage behind them so be careful about your estimates.
 

maugust

Thread Starter
Freshman Member
Joined
May 22, 2009
Professional Status
Certified Residential Appraiser
State
Maryland
The problem is that the adjustment has to be supported. I suppose it could be by finding investment-flip properties in the area, extracting cost to renovate, and the remaining would be the entrepreneurial incentive. Though that would be on the high end, since such cases take more time, so a higher entrepreneurial incentive would be expected.
 

alebrewer

Member
Gold Supporting Member
Joined
Mar 11, 2008
Professional Status
Certified Residential Appraiser
State
Texas
The problem is that the adjustment has to be supported. I suppose it could be by finding investment-flip properties in the area, extracting cost to renovate, and the remaining would be the entrepreneurial incentive. Though that would be on the high end, since such cases take more time, so a higher entrepreneurial incentive would be expected.
You're talking about what seems to be a very nominal adjustment. You're right that the adjustment should approximate the market's reaction to the damaged flooring, but wouldn't the typical buyer also look at cost to cure when considering a purchase? There is nothing in the selling guide that speaks to not being able to conduct 'across the board' adjustments, and at the end of the day, the expectation would be that you provided support for your adjustment - the litmus test of that support being the expectations of parties who would regularly be intended users for similar assignments and what your peers' actions would be in performing the same or similar assignment. I would submit that extracting an adjustment for damaged tile flooring would be almost impossible via paired sales or grouped data analysis. It seems then, that cost to cure might be a logical approach...
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
I believe that this would not be a supported adjustment.
Cost to cure is cost to cure, be it an estimate "subject to" or "as is"... I think it is a valid discount to be made as if you aver to add some amount to that as some sort of "market reaction" to the value, well....what market support do you have for that? Cost data is market data. That is why the Sales Comparison Approach is no longer called the Market Approach. Cost and income data are market data just as surely as sales are market data.
 

George Hatch

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Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
The idea that every adjustment has to be supported depicts an expectation that's even more unreasonable than the idea of making 40 different adjustments in a sales comparison grid. This isn't the methodology the buyers and sellers use in the SFR markets.

The first step in getting to credibility is to establish the reasonable expectation which you can actually meet. The assertion of unreasonable expectations is what inevitably undermines the credibility.

The weakness of going with the straight cost to cure is that (usually) nobody works for free. Including the buyers of a newly built or newly remodeled residence.
 

alebrewer

Member
Gold Supporting Member
Joined
Mar 11, 2008
Professional Status
Certified Residential Appraiser
State
Texas
The idea that every adjustment has to be supported depicts an expectation that's even more unreasonable than the idea of making 40 different adjustments in a sales comparison grid. This isn't the methodology the buyers and sellers use in the SFR markets.

The first step in getting to credibility is to establish the reasonable expectation which you can actually meet. The assertion of unreasonable expectations is what inevitably undermines the credibility.

The weakness of going with the straight cost to cure is that (usually) nobody works for free. Including the buyers of a newly built or newly remodeled residence.
But you haven't really offered an answer, George...
 

alebrewer

Member
Gold Supporting Member
Joined
Mar 11, 2008
Professional Status
Certified Residential Appraiser
State
Texas
One of the frustrating things about this forum is that folks, too often, are quick to shoot down opinions offered by others, but don't really offer alternative solutions...
 

alebrewer

Member
Gold Supporting Member
Joined
Mar 11, 2008
Professional Status
Certified Residential Appraiser
State
Texas
The weakness of going with the straight cost to cure is that (usually) nobody works for free. Including the buyers of a newly built or newly remodeled residence.
BTW - it's my understanding that a cost to cure estimate WILL include labor... that may not be typical of what you've found, though.
 

gregb

Elite Member
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Joined
Sep 3, 2011
Professional Status
Certified General Appraiser
State
California
One of the frustrating things about this forum is that folks, too often, are quick to shoot down opinions offered by others, but don't really offer alternative solutions...
What is the quote from that former Texas governor about a "silver spoon"? :)
 
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