Quality Rating for a House That Has Been Gutted?

[Jen Quinn]

Good morning all, first time poster here, please be gentle.

I'm working on an REO appraisal for a home built in '47 that was extensively updated and remodeled in 2006. (Plumbing, electric, siding, roof, vinyl windows, complete interior remodel, etc.) The problem is two-fold:

1) Some of the interior remodel was never completed (Master Bath is framed, wired and plumbed for a jetted tub that was never installed, Master shower is framed, wired and insulated, but doesn't even have a drain pan, let alone walls, there's no sink or vanity, and no toilet.)

2) The second problem is a little trickier. . . before this house was taken by the bank, the homeowners gutted the place. The took or destroyed all of the Cherry cabinets they'd installed in the kitchen, took the granite counters, removed 98% of the flooring in the house (They left the vinyl in the bathrooms, carpet in the closets, a few scraps of laminate flooring, and all of the tack strip from the carpet install is still present.), removed the gas fireplace and left a big old hole full of insulation and the fp vent, there are no sinks, faucets or appliances, no toilet in the main bathroom (They left the fiberglass tub/shower surround), they took the heat pump and furnace, H2O heater, thermostat, some of the light fixtures and switches, pulled the new electrical panel off the wall in the garage and took all the circuit breakers.

Obviously, this bad boy is getting a C6 rating, as it is not habitable and is going to take about $50,000 (based on estimates from homewyse.com) to make it so.

My question is this:

What kind of quality rating do I give this home for an as-is appraisal? Were the home intact, with the materials used for the remodel, it would have warranted a Q3 rating, as many of the materials used in the remodel were definite upgrades to standards in this area, but not Q2, as there were still vinyl and laminate floors, fiberglass tub surround, etc.

As it stands, there are essentially no interior finishes other than the newer interior paint on the walls (which are full of "Spite holes" btw), the newer base molding, door and window trim (which is missing in some places), some recessed lighting (some is unfinished, just holes in the ceiling). Do I base the quality on a hypothetical condition? I am not making an extraordinary assumption here, since this is an as-is appraisal, I can't say "It is an extraordinary assumption that the subject will be Q3 once repairs are made." Can I say that the report is based on the hypothetical condition that the subject is Q3 based on the quality of materials used in the remodel process?

Any suggestions on how to approach this would be greatly appreciated!

 

[Howard Klahr]

What is the intended use? i.e. "as is" or "as repaired"

If "as is" the structural construction and infrastructure would define the quality and your appraisal assumptions would be for market standard finishes. If "as repaired" you dictate the quality in your appraisal assumptions, but why exceed market standard in that it is not likely to provide a dollar for dollar return for the higher expense.

 

[VolcanoLvr]

The OP said it's an 'as is' assignment.

The Q rating is Q6 as the house sits now. Do not make any assumptions as to what it will be when finished.

The C rating is C6 currently.

 

[Terrel L. Shields]

first time poster here, please be gentle.

Don't worry we growl a lot but we're mostly old and can't bite...without our chompers.

The OP said it's an 'as is' assignment.

The Q rating is Q6 as the house sits now. Do not make any assumptions as to what it will be when finished.

Yes. And I would not make a $50,000 "subject to repairs" adjustment. nnnnooo... never. Let them provide you with an estimate from a contractor and do as subject to completion and inspection appraisal. I would not complete it "as is". For repairs, those should be minor. We appraisers have no business doing cost estimates much over $10,000...maybe even less.

 

[Riick]

As Is
C6 - of course

Q rating debatable, could be Q4 for unexceptional foundation, and shell structure.

Higher quality than average? Q3 maybe.

Q6 doesn't sound right to me, just because a structure is crop inside, or even merely a shell, there's still consideration of quality of the build, the exterior materials (brick, stucco, siding, and quality of each) and roof quality, existing windows, as well as carpentry detail and existing workmanship.
Very grey area: You pays your money and you takes your chances.

/

 

[VolcanoLvr]

This points out the danger of using the UAD type form for this assignment.

The lender wants to know 'what's it worth today' in its present condition. In fact, the lender probably won't sell this 'loan' to a GSE, because the GSE won't buy it with the house in unlivable condition. So why not ask the client if the 'old' form will be OK.

The lender is not going to re-hab the home. They will get it off their books as quickly as they can..........to an investor/builder who will fix it up and re-sell it......or maybe even live in it for 2+ years to qualify for capital gains credit.

 

[residentialguy]

Need a little more clarity. When you say "REO appraisal", is this for a purchase of an REO sale or an appraisal being done for a bank to establish the most probable price that they would get on the market as a bank owned sale?

If this is a buyer purchasing a REO sale, then it cannot be done as-is. C6 is an automatic subject to repair.

If this is for the bank establishing a value of a house they foreclosed on, I would contact the lender to request that the appraisal be done on a generic 1004, since it's not for FNMA and the UAD form is designated for FNMA purchase and not designed for that use....and neither is the definition of market value, for that matter, as you probably have a bifurcated market with vacant distressed sales selling significantly lower than traditional non-distressed sales that is reflected in the definition of MV

And I agree with Terrel...pass the cost to cure on to a contractor.

 

[J Grant]

I am assuming this is an REO market value purpose appraisal, and they want an as is value, and then as repaired second value?

Though I understand the case that the actual finishes in place are a C3, the fact that the house needs so much work and finishing puts it more in the C5 category. Who is your typical buyer? Probably a house flipper or investor/contractor, looking at other fair condition houses or houses that need repair They see it as a C5, they don't care that the actual work that was done was C3, since it needs large amount of finish to be habitable . I would not give it C6, that if for a house with sever damage or mold etc.

The as repaired value for this amount of extensive work would not be based on the estimated cost to cure but based on sale prices of similar homes bought into repaired /finished condition. The cost to cure is better off a range and identified as an estimate only .

 

[J Grant]

What kind of quality rating do I give this home for an as-is appraisal? Were the home intact, with the materials used for the remodel, it would have warranted a Q3 rating, as many of the materials used in the remodel were definite upgrades to standards in this area, but not Q2, as there were still vinyl and laminate floors, fiberglass tub surround, etc.

As it stands, there are essentially no interior finishes other than the newer interior paint on the walls (which are full of "Spite holes" btw), the newer base molding, door and window trim (which is missing in some places), some recessed lighting (some is unfinished, just holes in the ceiling). Do I base the quality on a hypothetical condition? I am not making an extraordinary assumption here, since this is an as-is appraisal, I can't say "It is an extraordinary assumption that the subject will be Q3 once repairs are made." Can I say that the report is based on the hypothetical condition that the subject is Q3 based on the quality of materials used in the remodel process

Read the FAQ about how to assign a rating for a home. It is supposed to be holistic, the majority of house fits into X category because----------. A few items of C 3 quality remain in an otherwise gutted house that will need extensive work to finish. It is common sense how to categorize this property.

 

[J Grant]

No need to contact bank about another form, they want it on this form and it is widely accepted by clients ordering MV purpose appraisals for REO owned properties to be done on the URAR form.