Property Condition Adjustments With No Comps Available

[Michigan CG]

Shame on you.

Yes shame on you, you have a pretty good post except that you are throwing around insults that are not necessary. Before the days of the internet people had to learn things the same as they do now but it was a lot harder. Forums are for learning, not treating others like 10 year-olds.

 

[Walter Kirk]

Check the listings of junkers and then the sales of the same property after rehab.

 

[Restrain]

Ok, so you know what the home should sell for after rehab. You should have a good idea as to cost of the rehab to get to the rehab condition. Then you need to figure out the probable profit margin, plus holding costs, plus marketing costs and commissions. Say the home will sell for $100,000. Cost of repairs is $35,000. Figure 6% commission, 10% holding costs. Profit margin estimated at 20%. So take the $100,000, deduct the holding costs and commission, deduct the profit margin, deduct the repairs, that is what the going in cost, or market value, of the subject should be.

Some will argue the methodology but I worked with more than one flipper and this was their approach, and it works, especially with distressed properties.

Just a suggestion.

 

[Andee]

Thank you all for your remarks and the help.

To fcrecords, this is not the first property I have worked on in this condition and I'm very well aquainted with the area, this is just the first time that I have no comps in similar condition, usually there are 1 or 2 that allow me to make a sound adjustment on C3 and C4 properties. I am well aware of how to write up a cost to cure and have done so many times not only for negotiations for this particular client but also for banks that have trashed out foreclosure properties. On the plus side, this client buys everything for cash with no RE Agent involvement and works directly with the bank to negotiate the purchase price, leaving his closing costs relatively low. This just happens to be a first, which I'm sure you and everyone else on this forum have had many of. I would also like to thank you for your tremendous amount of technical input and guidance.

 

[jay trotta]

"yet there is drywall damage throughout with broken tiles in laundry, kitchen and bath and it needs 17 piers on the foundation (he had it inspected)"

Don't know your area, it would appear the structure or what's left of it, would need raising for the "piers" to be properly set OR removed altogether. The question to me would be; Cost of Rehab vs New Structure ?
What's the value of the land ?

 

[Andee]

"yet there is drywall damage throughout with broken tiles in laundry, kitchen and bath and it needs 17 piers on the foundation (he had it inspected)"

Don't know your area, it would appear the structure or what's left of it, would need raising for the "piers" to be properly set OR removed altogether. The question to me would be; Cost of Rehab vs New Structure ?
What's the value of the land ?

Land value in that particular area is low, the majority of the cost is within the structure. The clients rehabs usually call for a complete gut to studs, joists and slab, leaving the fireplace and plumbing in place and I have to usually wait for his contractors bid.

 

[glenn walker]

I think Fcrecords response was a little harsh but in this case I agree with him . The appraiser is not going to learn the process on this property based on opinions from posters ** ESPECIALLY IF this property really has serious foundation issues ? J-Grant also made some very good points. We rehab homes and work with investors that have general contractors licenses and even they walk away from 95% of the homes with foundation or slide issues . This may be a high risk appraisal and investors can be very litigious if they lose money. THE bottom line is this Investor probably knows exactly what the true cost is to rehab this home and he and his broker know what it will sell for after its completed. The only need for an-appraiser is to use YOUR appraisal as a negotiating tool. AND IF THE investor doesn't know what he is buying then he could end up in a world of hell with foundation issues ... JUST WALK IT'S NOT WORTH THE LIABILITY.

 

[Carnivore]

Call some local fix and flip investors.

This is good advice. The problem always is that they(investors) don't like to reveal the inner workings(math in their head) so to speak because they have competitors out there doing the same thing. If there straight up with you, that information is now subject to get out to their competitors by you. Not that your telling people but the possibility is always there you may reveal something without malice.

Some other problems that come up in getting good numbers for the formula is how good or complete is the data you get from sales of other similar rehab's. This is why I am hard on Realtors in the MLS that say little to nothing about what might have been done to a particular sale. For example "Must see total Rehab top to bottom"
Well that sure tells me a lot....bzzzt, wrong the statement and accompanying pictures in MLS tells me very little about acquisition, it does tell what the MV is now.

Even with REO's Realtors often say very little about the sale when its listed. Oh, they use buzz words like Fixer-upper, or "needs work" But often the only picture you have of that sale is a front exterior that's obvious they took driving by at 35mph.

So to be helpful here is something that(I use)and might really come in handy for you; 'Means Residential Repair & Remodeling Cost - Contractors Pricing Guide'.

Also Mckissock has a CE Class O/L called "APPRAISAL OF REO AND FORECLOSURE PROPERTIES" its very good for the beginner, but really good for refreshing your memory on this type of work.

Hope I was helpful.

 

[Deleted member 130081]

You know, I think what I said is fine and I stand by it. USPAP says we must be competent prior to accepting an assignment. So if some of you want to scold me for scolding the OP, you go right ahead, but I think you do our profession more harm by scolding me than you do by giving the OP a pass. The mortgage world is not the only world out there and this is not a mortgage appraisal. So maybe the OP is using UAD terms as reference on the forum or maybe they are in fact completing a non-lender assignment on a 1004!?! I do take offense to all of this on a personal and professional level. Professionally, stuff like this makes us all look bad. Who do we look bad to? The REI world, who, could be a source of work for all of us, but with yahoos running around writing up reports that look like mortgage appraisals, its worse than laughable. The REI world knows as much about an appraisal and markets as we do, maybe more, so the bar for acceptability with that client type is going to be higher - all the mortgage BS isn't going to cut it. The OPs client does not need an appraisal because they don't know how to value the property. That client needs an independent 3rd party to sign a piece of paper they can show to the seller (who happens to be a bank) as a second and professional opinion. The grid I presented is my own, a property I made an offer on last week. Any of you who would like to know how an investor thinks, go ahead and keep that for reference. There are also numerous investor forums out there too.

And for the record, I may have scolded the OP, but I also gave a detailed explanation of what to do AND also said each one of us has made the same mistake.

So after months of free-for-all bashing, all of a sudden the forum gets sensitive? Well, maybe its about time.

 

[Mr Rex]

You know, I think what I said is fine and I stand by it. USPAP says we must be competent prior to accepting an assignment. So if some of you want to scold me for scolding the OP, you go right ahead, but I think you do our profession more harm by scolding me than you do by giving the OP a pass. The mortgage world is not the only world out there and this is not a mortgage appraisal. So maybe the OP is using UAD terms as reference on the forum or maybe they are in fact completing a non-lender assignment on a 1004!?! I do take offense to all of this on a personal and professional level. Professionally, stuff like this makes us all look bad. Who do we look bad to? The REI world, who, could be a source of work for all of us, but with yahoos running around writing up reports that look like mortgage appraisals, its worse than laughable. The REI world knows as much about an appraisal and markets as we do, maybe more, so the bar for acceptability with that client type is going to be higher - all the mortgage BS isn't going to cut it. The OPs client does not need an appraisal because they don't know how to value the property. That client needs an independent 3rd party to sign a piece of paper they can show to the seller (who happens to be a bank) as a second and professional opinion. The grid I presented is my own, a property I made an offer on last week. Any of you who would like to know how an investor thinks, go ahead and keep that for reference. There are also numerous investor forums out there too.

And for the record, I may have scolded the OP, but I also gave a detailed explanation of what to do AND also said each one of us has made the same mistake.

So after months of free-for-all bashing, all of a sudden the forum gets sensitive? Well, maybe its about time.

No it doesn't. Start reading on line 375 of USPAP. Are you sure you are competent to spout USPAP?