Property being sold "AS IS" condition

[Marcia Langley]

RSW,

It depends on the specific contract clause one is referring to. Someone mentioned improvements or repairs that might be agreed to in the contract. f those were not something thhat would be considered "subject to" according to one's guidelines, then it would be up to the client to decide whether he wanted you to appraise it "as complete" or not.

For example, maybe the contract calls for adding a fence and a patio. You would not condition for these things on a normal appraisal. But the lender may want you to appraise for the hypothetical condition that they are complete, or not.

The short version, barring conflicts, is that you discuss the contract in the contract section and you comply with the client instructions in the development of your appraisal.

 

[RSW]

My point exactly. There are several on this forum that would say you have to appraise it subject to no matter what and then there are those that would say you do not. What is the concensus on this forum?

 

[Fred]

As Marcia alluded, the OP made no mention of intended use or intended user.

There was some identification: sale. That's enough to indicate that a seller, a buyer or both want to know the actual value of the property. Asking an appraiser for the actual market value of something is not an uncommon act of due diligence.

it is unlikely that the appraisal will be for the value of the property in "as is" condition although it may be purchased in that condition. If anything, the lender may request values in "as is" condition and upon completion of the rehab.

I didn't realize real estate could sell or be purchased at any point in time in any condition other than its "as is" condition. If the client is a "lender," the transaction is likely covered by a regulation to appraise the property "...in its actual phyisical condition." (What a coincidence).

 

[Fred]

If there was something like water stains on the ceiling, roof was damaged from visual inspection, any signs of mold or foundation settlement, then you must do subject to a professional inspection. Then it doesn't make a difference if they are selling as-is or not.

As I said in the above post, I don't see how property can sell in any other condition, other than its actual condition.

Also, I am not sure what "subject to a professional inspection" means, unless you are trying to say subject to a professional inspection producing an assumed result. Of course, that might produce a useless appraisal for users who need to know actual value. Further, there is nothing stopping an appraiser from obtaining the inspection reports necessary to develop an actual, as-is value.

It seems to be omitted from much of the calculus here, that if the property decisions that client has to make are based on the actual, as-is value of the property, then basing an appraisal on as-if-repaired assumptions is not a way to produce credible results.

My point exactly. There are several on this forum that would say you have to appraise it subject to no matter what and then there are those that would say you do not. What is the concensus on this forum?

There is a third point of view, as suggested in David's post. The necessity to use hypothetical conditions is done on a case-by-case basis, but most of the time, as-is value is necessary. It is self evident, that if the client needs to know what a property is worth (and let's say it is worth $100), it does not solve the appraisal problem to tell the client - well, if it were fixed up, it would be worth $200. That leaves the client asking - yeah, but what is it worth - the question they hired you to answer in the first place.

 

[Marcia Langley]

My point exactly. There are several on this forum that would say you have to appraise it subject to no matter what and then there are those that would say you do not. What is the concensus on this forum?

RSW,

I'm really not sure what you mean. There are some occasions when it is necesary (no matter what) to use a hypothetical condition or an extraordinary assumption. Those occasions may be asked for by the client directly or required by the client through their request to adhere to certain published guidelines.

I can't think of a time when such would be dictated by something in the purchase agreement. I think we already have a consensus on this. maybe if you gave me an example of when a consensus was not achieved?

 

[Ken B]

If two parties enter into a contract to purchase and sell a specific property, the parties may agree to transfer title to the property in a condition reasonably similar to that found on the date of contract ("as is" condition") or in a condition different from the date of contract.

If the contract requires some change in the property prior to the date of transfer of title, an appraisal performed prior to the change in the property may report the present value of the property in "as is" condition, a present value of the property under the hypothetical condition that the changes have been made, and/or a future value of the property upon completion of the modifications.

Conditions of the contract may have no relationship with the conditions of the financing. If the "as is" condition of a property does not meet the property standards required by the financing, the client may not care less about the value in "as is" condition. However, the client may be interested in a cost to cure deficient conditions which would permit the property to meet any property condition standards of the financing.

Conditions of the financing may be of no interest to the seller if the contract proposes transfer of the property in "as is" condition. Conditions of the financing are very much a concern of the purchaser. In practice, if the contract specifies a certain form of financing is to be obtained by the purchaser and the contract specifies that the property is to be transfered in "as is" condition, but the "as is" condition does not meet the property condition requirements of the type of financing, the contract could be voidable. In such a case, the seller and the purchaser may renegotiate the contract. The seller may agree to perform certain repairs, which may or may not result in an increase in the contract price. The purchaser may agree to perform certain repairs which may or may not be reimbursed by the seller should the contract not be executed. Or, the parties may agree to a different form of financing which would permit the property to transfer in "as is" condition.

If modifications required by the terms of the contract or the terms of the financing are not complete prior to the transfer of title, the parties could agree to hold a percentage of the estimated cost to cure in an escrow account. These funds would be distributed to the seller upon completion of modifications or used to pay for the modifications directly.

Long story short...there are generally no absolutes which would allow one to unequivocally state that property only sells in an "as is" condition or that an appraisal must consider the value of a property in its "as is" condition.

 

[Webbed Feet]

If two parties want to trade a property at market value, you know, what it is actually worth - isn't that a "need" for market value as is, not a "want?"

Mr. Santora,

IF two parties are doing that, only one of them is obtaining a FHA loan and the appraiser's SOW includes an intended use involving an FHA loan, ......... the two original parties can "as-is" themselves all they want. My appraisal report is going out the door in compliance with FHA needs, not the needs of the seller and buyer nor some MBer that is my client either for that matter.

This "as-is" nonsense is not always possible. It can fly in the face of the SOW required for a particular intended use such as an FHA loan for example. A CB1 "type" of what some people mean by "As-Is" is also not always possible, or smart for the appraiser. An example of this latter one is finding three or four giant foundation cracks and all the doors swing shut by themselves. Personally MY report in such a case is going to use CB4 requiring engineering inspections. EVEN IF an engineer's inspection is presented to me prior to or during development with client desires I rely on it....... MY report is going out the door with a EA in it that this engineer's inspection report is credible. If my business policy dictates my reporting has to come off the 03/2005 Fannie forms to allow my required EA, or that I turn down completion of the assignment due to unreasonable client demands in the face of a need for an altered SOW.....

So be it.

Webbed.

 

[Webbed Feet]

<....... snip..... >
Long story short...there are generally no absolutes which would allow one to unequivocally state that property only sells in an "as is" condition or that an appraisal must consider the value of a property in its "as is" condition.

Mr. Brown,

Nice post!

Webbed.

 

[MZ818]

This "as-is" nonsense is not always possible. It can fly in the face of the SOW required for a particular intended use such as an FHA loan for example. A CB1 "type" of what some people mean by "As-Is" is also not always possible, or smart for the appraiser. An example of this latter one is finding three or four giant foundation cracks and all the doors swing shut by themselves. Personally MY report in such a case is going to use CB4 requiring engineering inspections. EVEN IF an engineer's inspection is presented to me prior to or during development with client desires I rely on it....... MY report is going out the door with a EA in it that this engineer's inspection report is credible.

That's what I would do too. You can not always do the appraisal as-is.

Also, I am not sure what "subject to a professional inspection" means

Well that's what that means. CB4 box.

Also, it's not my job to call and hire someone to inspect the house if there is possible foundation settlement and needing an engineers report, water stains, roof damage, etc..

Further, there is nothing stopping an appraiser from obtaining the inspection reports necessary to develop an actual, as-is value.

That's the client's job to provide to use if available. Otherwise CB4. Minor issues such as cracked windows, soiled carpets, etc.. can be appraised as-is, but how are you going to do an appraisal as-is when there is damages and deficiencies for the subject that is beyond your scope of work. Are you qualified to provide cost to cure estimates for mold, are you an engineer and can say there is foundation settlement? Then CB4 and put it back in the client's hands.

 

[RSW]

See I told you there was no concencus.