Quality Rating for a House That Has Been Gutted?

[J Grant]

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



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.

Many of us have done hundreds of REO owned properties with significant repair estimates. Not all appraisers have to accept these assignments, but if an appraiser does take one on they need to complete the repair estimate as best they can. It is only an estimate and they should give it as a range. (that is what I do)

 

[Mr Rex]

...and the REO form clearly states:

Provide an itemized list of repairs recommended to bring the property into marketable condition. Cost estimates should be based on reliable published cost sources and/or local cost resources. The appraiser is not an expert in the field of building construction and actual costs may vary from those provided. Repair costs and opinions reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building contractor.

 

[Jen Quinn]

Thank you all for your replies. They're very helpful.

I should have been more specific in my description. The house is a 2,600 sf farmhouse built in 1947. It's on 6 acres in a rural area 10 miles outside the metro area. It is bank-owned, and the assignment is for market value as-is and as-repaired.

There was extensive renovation done to the property in 2006, possibly even foundation work, as the foundation is a poured concrete perimeter with no evidence of cracking or settling inside or out.

There was only one sale in the market that was both bank-owned and in need of a similar level of repairs, and paired analysis between it and move-in ready homes showed a $50,000 difference in price. It was only on the market for 20 days, which helped determine the 30-day as-is and as-repaired values required by the bank.

I feel confident in my repair estimates, as I have cross-checked cost data. I was a contractor in a former life, and my husband still is. I am familiar with construction costs in the area.

Again, thanks for all the suggestions. I often feel like I am on an island here, and it is nice to be able to connect with others in my profession.

 

[Terrel L. Shields]

$10,000...maybe even less.

Many of us have done hundreds of REO owned properties with significant repair estimates. Not all appraisers have to accept these assignments

The OP indicates she has a background in construction estimating. But most appraisers are not contractor estimators.

Needless to say, perhaps, but apparently JG, Rex and Jen seem to believe that regardless the size of the project a "cost to cure" has no limits. Therefore, I assume you could start with a bare piece of ground and "cure" the lack of a house right? Duh??? Isn't there a problem with that? When does a "repair" become a "remodel" become a "subject to completion" rather than "subject to repair?". If the repairs exceed some modest level, say $10,000, then someone - some third party - needs to provide that estimate. Why? Because if you do it, regardless you claim otherwise...

The appraiser is not an expert in the field of building construction and actual costs may vary

by completing the assignment where your figures are used, you are in fact ACTING as an expert and therefore, you must be competent (competency rule) to estimate. On a witness stand you will face a real cost estimate rather than your own estimate conjured up from some cost book...and what cost book? If not using a reconstruction and repair cost book, then your numbers may well be suspect.

As a geologist, I know about decline curves in oil wells. I know how to do them. But they are estimates and I hire that out - spent about $10,000 for them so far this year. Yes, it increases the cost of the appraisal, but it reduces my liability. And it came up when I was deposed by a suit between siblings. I was repeatedly questioned about how I arrived at the reserve estimates and what kind of expertise did that 3rd party vendor provide. If he made a mistake and it was found out by another estimator (which is what we explicitly call them) then I still am not liable under USPAP. But had I done the declines myself, and made the exact mistake, I could suffer a liability.

USPAP allows the appraiser to rely upon such information with the only caveat being that the appraiser "have a reasonable basis for believing that those individuals performing the work are competent." You are laid out bare liability-wise when you provide your own estimates.

 

[J Grant]

...and the REO form clearly states:

Provide an itemized list of repairs recommended to bring the property into marketable condition. Cost estimates should be based on reliable published cost sources and/or local cost resources. The appraiser is not an expert in the field of building construction and actual costs may vary from those provided. Repair costs and opinions reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building contractor.

Terrel, refer to the above, (Mr Rex's post ). There is a printed statement to that effect on the REO addendum where cost to cure appears. I provide a statement that I am not a contractor and that the C2C is an estimate for valuation purposes and users and clients should obtain contractor estimates . I also give the estimate as a range.

 

[J Grant]

The OP indicates she has a background in construction estimating. But most appraisers are not contractor estimators.

Needless to say, perhaps, but apparently JG, Rex and Jen seem to believe that regardless the size of the project a "cost to cure" has no limits.

Never said or implied that! I write the C2C is for client use as valuation purpose only. Furthermore, unless the cost to cure is minor such as a 2k or so, I do not make my as repaired value dependent on the cost to cure. I base my as repaired value on similar repaired prices of comp sales.i

Therefore, I assume you could start with a bare piece of ground and "cure" the lack of a house right?

I would never do that and doubt the others you mention would!

Duh??? Isn't there a problem with that? When does a "repair" become a "remodel" become a "subject to completion" rather than "subject to repair?". If the repairs exceed some modest level, say $10,000, then someone - some third party - needs to provide that estimate. Why? Because if you do it, regardless you claim otherwise...
by completing the assignment where your figures are used, you are in fact ACTING as an expert and therefore,

I state on the report that my figures are NOT supposed to be relied on for contractor use and they should get contractor estimates for that purpose. I write that my estimates are for client use for appraisal purpose only .

you must be competent (competency rule) to estimate. On a witness stand you will face a real cost estimate rather than your own estimate conjured up from some cost book...and what cost book? If not using a reconstruction and repair cost book, then your numbers may well be suspect.

I don't rely only on cost books but also on local knowledge, years of asking contractors what would that cost and what would this cost etc. On a witness stand the first thing I'd do is point to my statement in the appraisal that my $ amount was an estimate and not meant to be relied on for repair purposes and that I urged the client and user to get their own contractor estimates.

As a geologist, I know about decline curves in oil wells. I know how to do them. But they are estimates and I hire that out - spent about $10,000 for them so far this year. Yes, it increases the cost of the appraisal, but it reduces my liability. And it came up when I was deposed by a suit between siblings. I was repeatedly questioned about how I arrived at the reserve estimates and what kind of expertise did that 3rd party vendor provide. If he made a mistake and it was found out by another estimator (which is what we explicitly call them) then I still am not liable under USPAP. But had I done the declines myself, and made the exact mistake, I could suffer a liability.

USPAP allows the appraiser to rely upon such information with the only caveat being that the appraiser "have a reasonable basis for believing that those individuals performing the work are competent." You are laid out bare liability-wise when you provide your own estimates.

I appreciate your view point, I wrote above the way I view it. My reasonable basis of competency is years doing REO estimates, looking up what it costs to repair or replace X and asking contractors, looking at builder cost sheets for new construction etc.

 

[Financially Feasible]

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)

Thank you all for your replies. They're very helpful.

I should have been more specific in my description. The house is a 2,600 sf farmhouse built in 1947. It's on 6 acres in a rural area 10 miles outside the metro area. It is bank-owned, and the assignment is for market value as-is and as-repaired.

There was extensive renovation done to the property in 2006, possibly even foundation work, as the foundation is a poured concrete perimeter with no evidence of cracking or settling inside or out.

There was only one sale in the market that was both bank-owned and in need of a similar level of repairs, and paired analysis between it and move-in ready homes showed a $50,000 difference in price. It was only on the market for 20 days, which helped determine the 30-day as-is and as-repaired values required by the bank.

I feel confident in my repair estimates, as I have cross-checked cost data. I was a contractor in a former life, and my husband still is. I am familiar with construction costs in the area.

Again, thanks for all the suggestions. I often feel like I am on an island here, and it is nice to be able to connect with others in my profession.

Hi Jen and welcome to the Forum. I am glad that you've found the responses here helpful (and, so far, non inflammatory!).

I'd like to discuss some other issues that, based on my reading of your posts (which have been partially quoted above) and a brief reading of the prior Forum member posts, have not yet been discussed (or need to be discussed further) and would be material in your analysis.

The most major issue is the estimate of repairs. The property that you are appraising, based on your description, has been the target of prior homeowner vandalism. It is not a partially completed house where the structure was in the process of being built and the contractor stopped (which would leave a structure that another contractor could presumably step right in and finish the job). You have identified potentially serious issues (things being "gutted", "destroyed" and "removed" by the prior homeowner) and have identified them well. You have also identified the presence of "spite holes" (which is a new one by me and not even Google knows what it is... but I think that I can put 2 and 2 together). I am sure that your client will be pleased by your level of inspection. However, what you have identified is a property which needs work WELL in excess of a typical renovation/finish construction. In reality, you have no idea what lies behind the walls of this property and what level of additional destruction was done as a result of the prior homeowner's(s') actions (assuming that the prior homeowner(s) was/were, in fact, the culprit)... or, if any of the destruction has resulted in additional damage to any of the remaining components. Therefore, despite both yours and your husband's experience as contractors, it may be in your best interests for you to get an independent renovation estimate. If you choose not to pursue this route, I sincerely hope that you are being properly compensated for being on the hook for both the value AND the repairs estimate.

The second issue is the repairs estimate itself. You have identified the following material issues with the house:

*partially completed master bathroom
*destroyed kitchen
*98% of the flooring removed
*removed HVAC and water heater
*removed plumbing fixtures
*removed electrical box/breakers
*removed some interior lighting
*removed fireplace

You have identified an estimate of $50,000 to repair this house based on your experience and homewyse.com (which I have never used and, before this thread, never heard of... not saying it's bad... just never heard of it). Now, speaking as a homeowner, if someone told me that the 8 bullet points that I re-iterated above were completed for $50,000 for a house that I was buying then I would RUN like the wind (and I do not have expensive tastes :laugh. Is your estimate of $50,000 inclusive of labor costs? Does it include entrepreneurial incentive? The second question is important as the most probable buyer for that property is likely an investor with the funds/wherewithal to complete such a complicated project.

Thirdly, you have identified via paired sales a difference of $50,000 between an REO sale in similar condition as your subject to properties in more typical condition. If you have successfully extrapolated that difference then I sincerely applaud you for your analysis. However, it brings up an interesting dilemma...

Assuming that your $50K cost estimate is inclusive of labor/ent incentive and your paired sales analysis of $50K in value is accurate... you are teetering on the edge of a Highest and Best Use problem. If your cost estimate does not include labor and/or ent incentive, or if there is any level of "cost hiccup" based on additional work that has been discovered, then you have renovation costs which exceed the value add and thus your property has incurable functional obsolescence. As the property would not be livable without the repairs, the H&BU of the property would be to demolish the improvements to ready the site for development to its H&BU (assuming residential unless otherwise warranted). Therefore, your comps would not be houses but rather land sales with an appropriate deduction for demolition costs.

The purpose of my post is, hopefully, to give you guidance about the potential pitfalls of an assignment such as the one that you are undertaking and, if you haven't already considered the points that I've made, that you take them under due consideration (as they could materially alter your analysis and conclusions).

I wish you luck with your assignment. If I can be of any further assistance, then please let me know... posting on this thread or by PM is fine.

 

[Jen Quinn]

The OP indicates she has a background in construction estimating. But most appraisers are not contractor estimators.

Needless to say, perhaps, but apparently JG, Rex and Jen seem to believe that regardless the size of the project a "cost to cure" has no limits. Therefore, I assume you could start with a bare piece of ground and "cure" the lack of a house right? Duh??? Isn't there a problem with that? When does a "repair" become a "remodel" become a "subject to completion" rather than "subject to repair?". If the repairs exceed some modest level, say $10,000, then someone - some third party - needs to provide that estimate. Why? Because if you do it, regardless you claim otherwise...
by completing the assignment where your figures are used, you are in fact ACTING as an expert and therefore, you must be competent (competency rule) to estimate. On a witness stand you will face a real cost estimate rather than your own estimate conjured up from some cost book...and what cost book? If not using a reconstruction and repair cost book, then your numbers may well be suspect.
USPAP allows the appraiser to rely upon such information with the only caveat being that the appraiser "have a reasonable basis for believing that those individuals performing the work are competent." You are laid out bare liability-wise when you provide your own estimates.

I do the same thing. I have a very clear statement in any report that gives an estimated cost-to-cure, stating that I am not a contractor, and recommending that the lender have inspections done and get repair estimates from licensed professionals.

I only mentioned my background as a contractor as an aside to the fact that I used an online cost estimator specific to the zip code in which I am appraising. This very detailed cost estimator arrived at figures that were very close to the ballpark figures I'd done in my head as I was walking the property.

Even though the $ amount for the repairs is high, I am completing the report to the lender's specifications. They want to know how much I think it will cost to get the property to saleable condition. I explicitly state that the repair estimates are just that, estimates, and that I am not a home inspector, nor have I looked at the subject as anything other than an appraiser. I did not enter the attic or crawlspace, did not move shrubs or any personal property...

I don't think that a high-dollar cost-to-cure for an existing house is the same as taking a vacant lot and estimating the cost to build a new house. The cost to repair is what it is, your arbitrary $10,000 limit on repairs is just that, arbitrary. I realize that A property isn't FHA insurable if repair amounts exceed $10,000, but they can and do lend on those properties with high-dollar repairs needed, in the form of FHA 203k and 203b loans.

This is completely off the topic of the reason for my OP. I do appreciate the insights though, and like getting people's opinions.

 

[residentialguy]

Smart choice: ask the lender to provide a cost to cure from a contractor.

Providing a C2C is extra liability. I can't think of any reason one would want that. ....maybe if you were a masochist> m2:

 

[Deleted member 128537]

Smart choice: ask the lender to provide a cost to cure from a contractor.

Providing a C2C is extra liability. I can't think of any reason one would want that. ....maybe if you were a masochist> m2:

That's what I do. The only time I give a cost to repair is for simple stuff. But whole house issues; NEVER. Asking for trouble.