PLease help with cost to cure

[65076507]

Could someone provide me with 2 or 3 actual examples of when a cost to cure would be needed? Could someone also provide 1 or 2 example of when people typically think a cost to cure is needed but really is not. I know this sounds crazy but I am sincerely trying to understand when and why to use costs to cure. Thanks!

 

[J Grant]

In REO appraisals, a cost to cure is required on the REO addendum, so obviously, the appraiser makes up a list of repairs or defects and then provides a cost to cure estimate for each one plus a total.

In general, on non REO assignments, an appraiser provides a cost to cure to provide information to the client, and sometimes as a basis for an adjustment, or a check to see if a market derived adjustment makes sense, by comparing it to a cost to cure. Sometimes a client asks for a cost to cure, or the appraiser can add it to report if the appraiser feels it contributes to report development. It is generally added on an addendum.

A real life example, a garage made into a den. The garage door is still in place, but owener put down carpet and drywall inside the non permited den. The appraiser decides that based on codes, zoning, and the fact that garage door is still in place and able to operate, the appraiser decides not to include any contrib value of the den and values the space as the garage.

The appraiser of course always describes and photographs what is there. Appraiser explains that the owner made an illegal interior den out of existing garage, but the door is still in place and functional, so due to illegal use plus door functioning, the space is treated as a garage on report. See addendum for cost to cure.

The appraiser provides a cost to cure estimate of what it would take to retrofit garage back , re, remove the drywall and carpet.

The purpose of the cost to cure is to provide lender or client with information to make decisions.

It can also assist appraiser with making value adjustments, or whether or not to make an adjustment. If the cost to cure the garage, re take down drywall and carpet is only $500, this can indicate to appraieser that the amount of $ is too small to consider adjusting for, and that most buyers based on the small cost to cure would not consider this a major defect. (if the market says different, if for some reason homes with dens in garages sell for 10 k less, or 10 k more, then the appraiser would have to go with market evidence, and state that due to appeal or utility, the market reaction differs from cost to cure. But if there are no comps, let's say with garages made into dens, the small cost to cure could support that no adjustment for defect is warranted)

 

[Mr Rex]

Minimum Property Requirements (MPR) and Minimum Property Standards (MPS)
For new construction to be eligible for FHA financing, it must comply with HUD’s Minimum Property
Standards (including 24 CFR 200.926d). Existing construction must comply with HUD’s
Minimum Property Requirements (HUD Handbook 4905.1). .
In the performance of an FHA appraisal, the appraiser must denote any deficiency in the appropriate
section(s) (site issues in the site section, improvement issues in the improvements section) of the
appraisal report. The appraiser is to note those repairs necessary to make the property comply with
FHA’s Minimum Property Requirements (MPR) or Minimum Property Standards (MPS) together with
the estimated cost to cure. The lender will determine which repairs for existing properties must be made
for the property to be eligible for FHA-insured financing.
Cosmetic repairs are not required; however, they are to be considered in the overall condition rating and
valuation of the property. Examples of cosmetic repairs would include surface treatments, beautification
or adornment not required for the preservation of the property. For example, generally, worn floor
finishes or carpeting, holes in window screens, or a small crack in a windowpane are examples of
deferred maintenance that do not rise to the level of a required repair but must be reported by the
appraiser.
The physical condition of existing building improvements is examined at the time of the appraisal to
determine whether repairs, alterations or inspections are necessary - essential to eliminate conditions
threatening the continued physical security of the property.
Required repairs will be limited to necessary requirements to:
• protect the health and safety of the occupants (Safety)
• protect the security of the property (Security)
• correct physical deficiencies or conditions affecting structural integrity (Soundness)
A property with defective conditions is unacceptable until the defects or conditions have been remedied
and the probability of further damage eliminated. Defective conditions include:
• defective construction
• other readily observable conditions that impair the safety, sanitation or structural soundness of the
dwelling

 

[J Grant]

Mr Rex example is applicable to FHA, which it is quoted from. FHA loans have their own reporting requirements, apart from conventional loan assignments.

 

[65076507]

J Grant thanks again. It makes sense to me when I read actual examples. Thanks!

 

[Terrel L. Shields]

In an in-house bank situation, cost to cure is never appropriate except as a means to make an adjustment. Secondary market (FHA, Fannie, etc.) have explicit instruction about when to require a cure.

Likewise, cost to cure is not appropriate for estate or tax work, etc. where the as is value is the purpose.

 

[Webbed Feet]

Missed a question

Could someone provide me with 2 or 3 actual examples of when a cost to cure would be needed? Could someone also provide 1 or 2 example of when people typically think a cost to cure is needed but really is not. I know this sounds crazy but I am sincerely trying to understand when and why to use costs to cure. Thanks!

You failed to ask for examples of when most real estate appraisers are not qualified to opine cost to cure numbers when lacking other outside expert inspections and estimates.

Interestingly, the most important question isn't really about understanding when and why to use estimates of cost to cure, the important question is knowing when and why to refuse to provide a personally created estimate of cost to cure.