Quality Rating for a House That Has Been Gutted?

[J Grant]

Ask property flippers/investors what they spent on the house they fixed and flipped whenever we deal with them.. Sometimes they exaggerate, but often enough times they give a realistic figure...adds to repair/renovation knowledge.

When the $ goes up to a larger amount with a number of items involved, I give a range..$50,000-$60,000 for example.

 

[Howard Klahr]

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.

While an appraiser is clearly free to perform or not perform assignments that they do and/or don't feel qualified to perform, but to impose global arbitrary dollar limits is ridiculous.

Lee Lansford wrote an interesting article in the Illinois Appraiser newsletter that was re-published in appraiserblogs.com. So lets stop with the excuses and either obtain the appropriate education and experience or do not take on assignments outside of your limitations.

http://appraisersblogs.com/appraisal/wake-up-call/

Clearly there are many appraisers that are qualified and capable of performing this assignment as requested.

 

[residentialguy]

While an appraiser is clearly free to perform or not perform assignments that they do and/or don't feel qualified to perform, but to impose global arbitrary dollar limits is ridiculous.

Lee Lansford wrote an interesting article in the Illinois Appraiser newsletter that was re-published in appraiserblogs.com. So lets stop with the excuses and either obtain the appropriate education and experience or do not take on assignments outside of your limitations.

http://appraisersblogs.com/appraisal/wake-up-call/

Clearly there are many appraisers that are qualified and capable of performing this assignment as requested.

That article does not apply to this, imo. You're trying to align the ability to read blueprints or a sales contract with house construction costs? Seriously? I hope I misread your post. Sure, we can get out the cost manual and throw down some numbers. But we are not contractors and that kind of research puts the appraiser in a very precarious position. Yeah, that crack in the ceiling wouldn't take much to cure...but what's behind that wall that made it crack? You can straddle your "it's your job" high horse all you want, but the higher you are, the harder you fall. It's your job if the client refuses to hire a contractor and you agree to the demands of providing a C2C.

 

[Jen Quinn]

That article does not apply to this, imo. You're trying to align the ability to read blueprints or a sales contract with house construction costs? Seriously? I hope I misread your post. Sure, we can get out the cost manual and throw down some numbers. But we are not contractors and that kind of research puts the appraiser in a very precarious position. Yeah, that crack in the ceiling wouldn't take much to cure...but what's behind that wall that made it crack? You can straddle your "it's your job" high horse all you want, but the higher you are, the harder you fall. It's your job if the client refuses to hire a contractor and you agree to the demands of providing a C2C.

Giving cost estimates on REO assignments is common in this area. I have yet to have a lender come back at me because my cost estimates (which are clearly stated as estimates, not bids, not binding contracts, just opinions based on research into construction costs in my area.) are inaccurate.
I never make the claim that I know what is going on behind walls, in crawlspaces, in the pipes that run from the street to the house, etc. I do not estimate the cost to cure things that I cannot see and therefore of which I have no knowledge.
In fact, I am exceedingly careful to point out that I do not know anything about the state of hidden materials or systems, and recommend inspections.

 

[Terrel L. Shields]

Sure, we can get out the cost manual and throw down some numbers. But we are not contractors and that kind of research puts the appraiser in a very precarious position

Exactly...

Giving cost estimates on REO assignments is common in this area

Does that make it right however? And what are the consequences if not?

If you estimate a dwelling to have a $50,000 repair bill and the HO buys thinking that they can fix everything for 50K and end up spending $130K....what if they decide to sue you for misleading them? And for an appraiser - competent at estimating or not - to take on a job requiring 10% - 30%, maybe 100% of the value as is for a "repair" value, whatever your skill level is...???

What do you think the first question in court will be for you? "Are you LICENSED as a general contractor?" And you will have to answer no...the rest of the testimony will then go downhill. Using only the regular cost books or some idiotic on line service isn't going to give you a RECONSTRUCTION cost....check out the books. Compare the values in a RECONSTRUCTION manual v. a SF COST (replacement) manual.

And yes, a lot of the builder/flippers can get a pretty good general idea what they will SPEND. And if there are significant things, they will cover it up, not fix it right if that is necessary to keep within their budgets. Replace broken windows with used ones from another project, used toilets, appliances, etc. Deep clean the rug and do it twice and re-stretch it rather than replace it.
I expect their bids to be inflated and vet it against the insurance and remodeling guide book, but it is still going to be THEIR estimate on the dotted line and clearly labeled so.

I cannot recall a single REO where I estimated the repair costs. The bank hired a contractor to do it, or the buyer provided an estimate.


These are project that need a licensed contractor. So what else will you do? Environmental Site Assessment I? Perhaps certify the septic works or run a perk test...do a home inspection while at it. Electrical inspection. As Shakespeare put it,

GLENDOWER
I can call spirits from the vasty deep.

HOTSPUR
Why, so can I, or so can any man;
But will they come when you do call for them?

I'd be careful what spirits you call up. And I would want to know for sure just how far an E & O insurer would go before they say you are outside your area of expertise.

 

[Tim The Enchanter]

…the Spirits are about to speak!”

Rocky: “Are they friendly spirits?” Bullwinkle: “Just listen!”

 

[Jen Quinn]

(GAH! This is so frustrating. I am trying to respond to Terrel L. Shields' most recent post, but when I quote it, interjecting my responses, I get an error message saying that my post is too short. Short, it is not!) So I am posting it anyway, it's basically a paragraph/point by paragraph/point response. Sorry if it's confusing.

First of all, this appraisal is not for a sale. It is an as-is appraisal for the lender that has this property in their portfolio, and they want to know how much they can get for it.

Actually, I am a licensed contractor and co-owner of a corporation that does residential contracting. It's not relevant to this discussion though, as I didn't make up my own estimates. As I have stated repeatedly, my estimates were based on detailed research, not some random number I pulled out of thin air.

Also, your discussion regarding RECONSTRUCTION cost is completely off topic. There is no reconstruction. Repairs will need to be made and bathroom fixtures and kitchen fixtures and cabinets will need to be installed. There was no readily visible evidence of any structural damage to the house. All my repair estimate covers is those items that are readily visible.

The REO addendum has an entire section devoted to repair cost estimates, it specifically asks for as-is and as-repaired values. If you've never estimated repair costs, how do you complete that form? And if you don't use the REO addendum, have you not completed a Repair and Maintenance Addendum for an FHA report?

These forms are not asking you to misrepresent yourself as a contractor, they are asking you to give them an estimate based upon your research.

Again, this leap to the nth degree in regards to what I would or wouldn't do as an appraiser is ridiculous. I am not falsely representing myself, overstepping my boundaries or exceeding my level of competence when I give an estimate based on the research I have done. I have documented every single step in my workfile, I have spoken to contractors, and I have shopped both home improvement stores and wholesale distributors. I feel that this is a sufficient amount of research to create a credible report.

 

[J Grant]

The REO addendum and cost estimate is not for a buyer to rely on. It is done for the lender who already owns the property.

 

[J Grant]

If one does a number of these, year after year, doing a cost estimate is not rocket surgery. I mean, the price of drywall is X, it's a 100 foot section that needs drywall replacing, etc through the list, doh...

 

[Terrel L. Shields]

First of all, this appraisal is not for a sale. It is an as-is appraisal for the lender that has this property in their portfolio, and they want to know how much they can get for it

If they want to know the as is value, then the cost of repairs is a meaningless metric. Secondly, that bank has no intention of hanging onto this forever. Who is to say they won't use your appraisal as a marketing tool to a buyer?
Reconstruction value refers to repairs - Insurance v appraisal. Insurers have to pay for demolition as well as construction. "Repairs" cost more per SF than new construction. The books are different and so is the pricing. Typically the cost is about 10-15% higher for reconstruction cost v replacement cost.

So where is the line? Where is the line between "repairs" and "construction"? I will err on the side of caution, because unlike you, 99% of appraisers are not likely licensed contractors. They have no business doing extensive repair estimates.

a cost estimate is not rocket surgery. I mean, the price of drywall is X, it's a 100 foot section that needs drywall replacing

Ever had a repair bill that was higher than you thought it ought to be?

Did that spot on the rug you thought you could fix turn out to be from a leak in the kitchen on the other side of the wall? And that leak turned out to be from a rusted garbage disposal, which when you took it out, the cut off valve couldn't close completely, and the top ring was frozen into the sink? When you took the sink out to get to it, you find the faucets look bad and notice the countertop has rotted around the faucets...and on and on? Repairs have the annoying habit of metastasizing into a larger project than is obvious.

The savvy flipper might cover these up, use used parts, etc. Most contractors I know bid with a contingency clause inserted in the contract for the unseen. As appraisers, we are not only limited to the visible, but when we step outside our area of expertise, there is a question of whether your E & O is there standing by you...licensed contractor or not. If licensed then you need contractor's E &O. If not, you are dabbling in something best left to professional estimators. Repairs, beyond minor defects, are not our job. And $50,000 can be half the cost of a new house in my neck of the woods.

I don't do new construction without someone else's plans and specs and I don't do repair estimates best left to a contractor. And for the average appraiser to do them seems awfully high risk potential to be uncovered from your E & O and increased chance someone will buck up over the estimate. Never mind the issue of competency and whether or not you used a good cost book, know how to read it, and know enough construction to know what is actually going to be required...(2 coats of paint or 1?, do I use the local multiplier for a dumpster or do I assume they haul off the trash themselves, etc. etc.)