New condition property with damaged flooring "as is."

[George Hatch]

Your following the wrong track, George. Nowhere in the OP's post was there mention of buying a property to flip it, or that the property was 'trashed out'. Per the post, the property had actually already been rehabbed (meaning that it was most likely being purchased by an OO), and that the only thing that remained was the broken tile flooring. How in the world could you estimate EI for repairing tile flooring?

I think you're the one who isn't following.

Let's write it out in long form. We've got a buyer who has the following choices which are otherwise identical:

Property A is in finished condition as of the effective date, and selling at $250k.
Property B needs $3k in flooring as of the effective date.

How much would you expect the buyer to pay for Property B when they can get the finished Property A for $250k?

 

[Terrel L. Shields]

The mix I quoted ebbs and flows depending on commercial activity...

Banks pay more when they have more loans to service and CGs are behind. In 2010 era, I saw appraisers doing retail appraisals for $500. Others took low fees out of desperation apparently. I've always had a modest fee schedule but I wasn't that low since the 90s... when I needed hours.

never seen Fannie treat any appraiser like rubbish?

When Phillips Petroleum merged (actually bought out) by Conoco and moved to Houston, the primary employer of Bartlesville, OK, property values collapsed. People without a blemish on their credit history crashed and burned, lost their homes, speaking of which, fell by 30% or more in value. Banks who had lent in good faith with a good appraisal, were forced to buy back all those loans...every one nearly. Fannie Mae sent in some appraisers with the express instruction to find something wrong with the report. In one case, the appraiser had 3 comps in the $50,000 range (these were cheap housing) and came up with a reasonable price. He ignored one sale for somewhere in the $30,000 range because it was falling down. The FNMA reviewer targeted this sale (some three years early) and noted the house was key to the value, arguing that the property was similar in size, so the subject should be worth only $30,000 and faulted the appraiser. The mortgagee, Capitol Mortgage out of Little Rock, tried to argue (correctly) that the low sale had been rehabbed since sold, thus was not a comparable. FNMA told them buy it back or else, and demanded they blacklist the appraiser. That was told to me and several other appraisers by the CEO of Capitol itself.

 

[alebrewer]

I think you're the one who isn't following.

Let's write it out in long form. We've got a buyer who has the following choices which are otherwise identical:

Property A is in finished condition as of the effective date, and selling at $250k.
Property B needs $3k in flooring as of the effective date.

How much would you expect the buyer to pay for Property B when they can get the finished Property A for $250k?

(a) I thought you were discussing 'trashed out' properties and the EI associated with rehabbing them and flipping them?
(b) If I were the buyer, I'd discount property B by the estimated cost to replace the flooring
(c) where did you come up with the $3k, and more to the point - how do you estimate the EI in your CTC of $3k?
(d) I still haven't seen you proffer an alternative solution to the OP's original question...

 

[alebrewer]

Banks pay more when they have more loans to service and CGs are behind. In 2010 era, I saw appraisers doing retail appraisals for $500. Others took low fees out of desperation apparently. I've always had a modest fee schedule but I wasn't that low since the 90s... when I needed hours.

When Phillips Petroleum merged (actually bought out) by Conoco and moved to Houston, the primary employer of Bartlesville, OK, property values collapsed. People without a blemish on their credit history crashed and burned, lost their homes, speaking of which, fell by 30% or more in value. Banks who had lent in good faith with a good appraisal, were forced to buy back all those loans...every one nearly. Fannie Mae sent in some appraisers with the express instruction to find something wrong with the report. In one case, the appraiser had 3 comps in the $50,000 range (these were cheap housing) and came up with a reasonable price. He ignored one sale for somewhere in the $30,000 range because it was falling down. The FNMA reviewer targeted this sale (some three years early) and noted the house was key to the value, arguing that the property was similar in size, so the subject should be worth only $30,000 and faulted the appraiser. The mortgagee, Capitol Mortgage out of Little Rock, tried to argue (correctly) that the low sale had been rehabbed since sold, thus was not a comparable. FNMA told them buy it back or else, and demanded they blacklist the appraiser. That was told to me and several other appraisers by the CEO of Capitol itself.

There is so much wrong with this, I don't even know where to start. For someone who doesn't play in 'fannieworld', you seem to know a lot about it? (a) Fannie doesn't 'send in' appraisers. If you're talking about the folks 'sent in', Fannie contracts with third party providers, who generally provide BPO's on NP loans. Those BPO's are then reconciled by (mostly) in house appraisers at Fannie, who also work closely with Fannie's property preservation and asset disposition groups. (b) Regarding your buyback scenario, Fannie does employ folks whose primary function is to find substantive errors with appraisal valuations, and then to use those findings as PART of a repurchase/buyback effort by Fannie, the other part being substantive errors on the credit side of the lending decision. Most of the larger lenders, on the other hand, have folks in house whose function is to dispute, and hopefully discredit the findings by the Fannie appraisers. I can't speak to what the CEO of Capital Mortgage out of Little Rock told you and several other appraisers, I can only tell you how it really works.

 

[George Hatch]

I used heavy fixers to illustrate the application.
The $3k is a number I pulled arbitrarily for the purpose of asking the question, same as the hypothetical $250k

I already explained how I'd identify the discount - which includes EI but also includes contingencies that are not counted among the hard costs. I survey the flips and use those as proxies, and import the rate for use in this analysis.

So you would really pay $247k for Property B and finance the flooring costs and engage in the hassle for free? If cost=value to you then why wouldn't you just buy Property A in the finished condition and skip altogether the hassle and out-of-pocket expense of redoing the flooring?

 

[alebrewer]

I used heavy fixers to illustrate the application.
The $3k is a number I pulled arbitrarily for the purpose of asking the question, same as the hypothetical $250k

I already explained how I'd identify the discount - which includes EI but also includes contingencies that are not counted among the hard costs. I survey the flips and use those as proxies, and import the rate for use in this analysis.

So you would really pay $247k for Property B and finance the flooring costs and engage in the hassle for free? If cost=value to you then why wouldn't you just buy Property A in the finished condition and skip altogether the hassle and out-of-pocket expense of redoing the flooring?

(a) you didn't say anything about financing in the original scenario?
(b) if we're talking about the 'hassle' of replacing some tile flooring (which appeared to be a fairly nominal issue per the OP's original post), then yes - I'd estimate the CTC and discount the sales price by that amount. If we're talking about significant expenditures, time, and hassle, then I absolutely would add those into the discount that I would require - but again, that was not the point of the OP - you're moving off track again.
(c) you still haven't proffered a viable solution to the OP's original question (why do I feel like I keep saying that Jeff Epstein didn't kill himself?)

 

[alebrewer]

As to why I wouldn't discount it further, given that I could buy the other property without having to replace the tile - maybe I prefer to pick my own tile? You're trying to make WAY too much out of the problem, George. I get that you just want to argue - and I appreciate that. I like a good debate as well. You're fighting a ghost on this one, though...

 

[DARREN GODFREY]

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?

Hmm...sometimes sellers offer a cosmetic subsidy of $3000. I have used that in a pinch.

 

[George Hatch]

As to why I wouldn't discount it further, given that I could buy the other property without having to replace the tile - maybe I prefer to pick my own tile? You're trying to make WAY too much out of the problem, George. I get that you just want to argue - and I appreciate that. I like a good debate as well. You're fighting a ghost on this one, though...

Serious question: Does your institution engage in construction loans, FRTs and the like?

 

[George Hatch]

The question I posed assumed a matched pair - meaning property A already had the tile you wanted. And yes, the distinction between financing a flooring install, or a roof or an AC unit or a solar install or all new exterior paint - it doesn't matter what the variable or its exact cost is. The application is the same. A buyer that's financing Ptoperty A with a 4% mortgage doesn't have to dip into their own cash or their 10% credit card or a 2nd mortgage in order to get what they want.

Just the buyer's cash flow alone should prompt you to go beyond a simple cost=value assumption.

So, back to Property A (inclusive of your favorite tile) vs Property B (which will be a work in progress). If the CTC really is only $3k or $5k or $25k do you still think that really represents the price we can typically expect most buyers to deduct from Property A's price to pay for Property B in most situations?