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rehabs in city

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jwand125

Thread Starter
Freshman Member
Joined
Feb 18, 2002
:roll: Hi everyone, lately there has been a scare about rehab/flip properties in urban areas. I have recieved an order for a rehab prop.
other rehabs in area are between 75-85. I can tell by sale history they are rehabs one has prior within year but others have priors with in 2 or 3 years. The appraiser I apprenticed under was very cautious about using more then one rehab, but the subject is a rehab and most similar to other rehab properties. I am newly on my own and have very little experience with urban rehabs. any advice. non rehabs 30-70.
 

Randy Beigh

Senior Member
Joined
Jan 16, 2002
jwand

Our city does not have this particular situation, but I will attempt to answer the question with questions.

1. You saw the subject. Was it really rehabbed or did it have a new coat of paint and or carpet or some other maintenance issue?

2. What is the sales history of your subject?

3. What is the reputation of the sales agents and the contractors involved?

4. Is there a history of repo's with the same house? That is, are there multiples repo's on the same house?

5. What are the listings for the rehabbed sales? That is do they sell for more than listed? If so, why?

6. What type of financing do the rehabbed properties sell for? Are they some low income, no down whiz bang sale that is a near repo guarantee in the future?

7. Who are the lenders? Are they reputable? Is the same 1 or 2 mortgage brokers involved in most of the deals? Same question for the sales agents.

8. Also, what of the neighborhood? Are there other repo's in the immediate area? Nothing worse than a subject with boarded up houses within eyesight.

You teacher was wise to be wary of these things and so should you be. If the properties are truly rehabbed and the sales are typically on the up and up, there probably isn't a problem. But, if you have fraud running rampant in your community, I would not use the property sales that have been involved in such schemes.

I will be interested in seeing other answers to your concerns.
 

jtrotta

Senior Member
Joined
Jan 16, 2002
jwand;
Randy offers some good input, but will add my 2 cents worth for kicks; the non-rehabs at 30-70, what kinda shape are they in ??

Are these the reason for the re-hab growth in this area??

Is this urban area in a turn around because of city incentives??
Are they offering an incentive for re-hab properties??

Are any in a historic district?? Is that a cause for -re habs??

You state you can tell they're re-habs from the sale history, but have you checked the Local MLS - Priced Originally at?? Reduced Prior to Sale?? and how did the Realtor write up the listing blurb??

Finally, check the sales contract for sure- read it over carefully and keep it in your file.

Good Luck 8)
 

Larry Lyke

Senior Member
Joined
Feb 2, 2002
jwand125 --

"Flips" -- There are 2 kinds: Legal and illegal

The public, newspapers, authors and much of the real estate industry combines them and talks as if they are monolithic.

NOT TRUE!

Definition: A "flip" is any property that has changed hands in a fairly short period of time (pick a number). OF COURSE, a purchase for rehab followed by a subsequent sale is a FLIP. Albeit LEGAL!

NOW that you know that, STATE clearly in your appraisal the history of the Comp, purchase price, date, condition at point of resale, resale price, etc. and stress it was sold in the public marketplace (MLS) in competition with other similar/like properties, was an arm's length transaction, etc.

DEPENDING on the amount of work/rehab, you might have a property that is worth the top of its marketplace/Neighborhood. Lots of rehabs meet this standard in my Neighborhood.

Good luck. Call back if we can help.
 

bradellis

Member
Joined
Jan 16, 2002
Larry,

Where do you get your definition of a flip? You talk about legal flips, but I have never seen one defined- at least by any more than one individual person.

What I see is that, most every time the term gets used, it carries with it a negative connotation. This holds true in congressional testimony, HUD requirements and pronouncements, and it is the negative connotation that gets it so much ink.

You may recall that I have officially asked HUD for a definition. I think it time they stepped up to the plate on this.

If this is simply semantics, I would submit that it is pretty important semantics.

NOW for our appraiser who started this string: I recommend a reading of the competency provision. Just make sure that the proper education is obtained and make necessary disclosures. The principles you learned and the market analysis skills you have already developed will serve you well.

Brad Ellis, IFA
 

Ray Ohler

Sophomore Member
Joined
Jan 15, 2002
Obviously, there is a problem with a definition of a "flip" much the same way the bozos down in DC couldn't come up with a definition of "predatory lending". Everyone KNOWS what it is, problem is coming up with a "legal" description of what it is. THAT is precisely what allows it to go on, along with the "flips" (NOT the legitimate kind). I use the term "legitimate" as opposed to "legal". The "legitimate" flip, at least in MY opinion is a hard-working, ethical, above board investor (notice - no quotation marks) who purchases a property "legitimately" BELOW MARKET and actually rehabs it (I've seen 75 year old houses look like NEW houses) and sells for a profit (usually not a HUGE profit). Time and space doesn't permit going into this in detail, that's why I always said each appraisal in itself is unique; you have to look at the WHOLE story not
just make a quick call (which is ANOTHER reason the fraudulent transactions keep on coming). The "illegitimate flip" takes place when a not-so-ethical "investor" (quotation marks) finds a property they can get WAY below market (not really), paint the front porch, put cheap carpets in, get a "junk-picker" to find someone that's thrown out a rusted
gas-range, hire some neighborhood "dupe" to cut out pieces of drywall and stick in the holes in the plaster, covering it with three layers of tape and eight coats of paint, get some "junk" replacement windows and a cheap steel door from Home Depot and FLIP the freaking thing for three times what it's worth. How does one "know" the difference? LOOK.
jwand125 - best I can tell you is LOOK at your subject, find out ALL you can about your comps, and most importantly, if your urban area is anything like Philadelphia, MAKE SURE the "comps" are not located in a nearby "sub-market" which falls within the same zip code. Without knowing ALL the particulars, it is rough to say the least to give a completely "definitive" answer to your question. Too much coffee today.
 

jwand125

Thread Starter
Freshman Member
Joined
Feb 18, 2002
This neighborhood borders an old urban area that has been reivitilized and yuppafied. But it crosses the highway and I dont believe this area will catch on. The prices dont reflect that it has so to answer one question no it is not revitilzed. One thing that makes me wary is that two rehab comps look good on MLS. selling around 8% below list but the vast majority are not on MLS. I got a very good free education from the forumites and I appreciate it greatly. I dont like this kind of property. I am going to address everything i can possible think of and everything mentioned. The value is looking clear but rehabs make me paraniod.

thanks again
 

Larry Lyke

Senior Member
Joined
Feb 2, 2002
jwand125 --

I think you will find that my definition of a flip will serve you very well.

bradellis, IFA --

I do a lot of business in a known flip area. Have never been challenged by an UW on a rehab PMM appraisal. I write with a positive clarity that my English teacher would love. Organization of the appraisal is a lot like method acting. It's not a creative writing class.

Be BOLD and ABSOLUTE on the facts. The only way to do that is to do solid research.

There's nothing too cute or too hard about putting together a property that's being legally flipped. Do it for FHA all the time.

Don't be meek as if your hiding something. Use the phrase "legal flip" and blow your UW out of the box. WHAT ARE THEY GOING TO DO, TELL YOU TO DELETE IT? Fat chance.
 

bradellis

Member
Joined
Jan 16, 2002
Larry,

Of course you can use whatever terminology you want. I have not said thqat it is wrong, nor have I said that it would not surprise your underwriter. As long as you make it clear what you are talking about, it fits.

BUT, what I am getting at is the notion of we appraisers using the term in any kind of positive light. Whether it be legal, legitimate, whatever. By our doing so, we continue to promote the term in a legal sense when MOST of the market considers it to be negative. Your own UW is a case in point. The minute he/she saw term, they thought, "Uh-oh". Thats is because most of the market reacts that way. Only your full explanation made them change their mind.

I'd love it if we all came up with some other termj for these fully legal (and in many cases, socially beneficial) turnovers.

I think "redevelopment" is the better term. Nothing adverse is connected with it. It is just as good and perhaps more descriptive.

That way, whenever any of us uses the term "flip" everyone will know what we intend.

Steven Smith,MAI is the fellow that produced the first course on flips. I asked him his definition. This was in a NAIFA chat room. His response?

"There must be an element of fraud in a flip" (paraphrased). I think he is right.

Brad Ellis, IFA, RAA
 

Dale Smalley

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
What drive me crazy reviewing appriasals of rehabbed properties is when the do not describe what exactly has been rehabbed. How about including some interior photos. Did they do serious work or did they just putty and paint? Investors buy and fix up properties all the time and deserve a profit for the risk. This is not a flip sale. Flips are not illegal but using them as comps can get you into trouble.
 
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