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Repair Incentive

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Susie Seibert

Thread Starter
Junior Member
Joined
Mar 22, 2005
Professional Status
Certified Residential Appraiser
State
Michigan
Hey everyone,

A homeowner has asked me to do an appraisal on his own home that he has been remodeling for 11 years. He is a builder and the home is 85-90% done. The work that is done is all custom cabinetry, flooring, etc. His out-of-pocket costs are about $7,500 to finish. He figured the cost if a bank got this home back for some reason and they had to finish it. That cost he figured to be approximately $15,000.

My question is, would you figure a repair incentive cost on top of the $15k?

At this point he is not sure if he's going to re-finance or not...he has a credit line with one bank and may just go that route but if the home appraised out more he may do a re-fi.

Thanks as always.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
The repair costs you note are supposed to be the market, or retail, costs to finish.

The adjustments you make are based on the market so look for houses that have been updated, look for some that are mostly updated and in average condition too. In fact look at the entire market, isolate the sales that can bracket the subject, and call the agents and talk to them. Find out how much work may be needed in each, and do your best to extract a value difference.
 

Bobby Townsend

Sophomore Member
Joined
Nov 23, 2002
Professional Status
Certified Residential Appraiser
State
California
It depends on the market and the work that needs to be completed. In my area, I see buyers frequently discounting for a deficiency anywhere from two to four times the actual cost of the deficiency.
 

Webbed Feet

Elite Member
Joined
Feb 11, 2005
Professional Status
Certified Residential Appraiser
State
Canada
Ms. Seibert,

Your post is bothering me. Did you obtain in writing, before accepting this assignment, that you notified this homeowner that if he tries to refinance that any lender should reject the appraisal he hired you for? Then did you and he agree to a EA that his provided costs to you are accurate? As you are accepting data from a biased source? It could be good data from a very honest person, it could be bad data for several reasons.

Webbed.

P.S. You are not using 03/05 Fannie forms for your reporting are you?
 

Susie Seibert

Thread Starter
Junior Member
Joined
Mar 22, 2005
Professional Status
Certified Residential Appraiser
State
Michigan
hi webbed...

thanks for your reply.

the homeowner is aware that his bank will probably order their own appraiser to do an appraisal should he decide to re-fi. i did not have him sign anything beforehand. we did discuss that i have not worked with any of his financial institutions and that in all likelyhood, another appraisal would be ordered.

i am doing this on the ala mode gp form.
 
Joined
Jun 3, 2005
Professional Status
Certified Residential Appraiser
State
Colorado
Hi Susie --

I think the homeowner's estimates are on the right track. The market will generally discount a small amount of work that needs to be done much more than the actual cost of the work; likewise (and perversely) the market will often discount a large amount of work at much less than the actual cost.

Cosmetics are overvalued, and serious problems undervalued. Go figure . . .
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
It depends on the market and the work that needs to be completed. In my area, I see buyers frequently discounting for a deficiency anywhere from two to four times the actual cost of the deficiency.

I will typically try to determine the ACTUAL cost for a specialty contractor to finish and then double that factor for risk and/or entreprenueal profit.

As far as trying to find one or more market sales with the SAME job that needs to be done, it would not be economically feasible. Each job is different and depends on what is underneath the old materials, disposal costs, the type of repair, etc.
 

Webbed Feet

Elite Member
Joined
Feb 11, 2005
Professional Status
Certified Residential Appraiser
State
Canada
Ms. Seibert,

Do yourself a favor. Document you told him somehow. Tell him you need it for your work file you told him. Ask him to acknowledge it in an email at least.

;)

Webbed.
 

Riick

Elite Member
Joined
Aug 14, 2007
Professional Status
Certified Residential Appraiser
State
Delaware
Rule of thumb often used by Lenders with a REO that needs work, is to take the retail cost, and multiply by 2 or 3 for the discount.
Most Buyers have little or no experience in contracting out work needed, and are frequently overcharged by contractors
- often massively overcharged.
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Rule of thumb often used by Lenders with a REO that needs work, is to take the retail cost, and multiply by 2 or 3 for the discount.
Lenders can do that -

Appraiser performing due diligence may need to develop a realistic INFORMED cost to cure for the Cost approach or other support for their PFA number...

and then deal with the MARKET approach - how a potential buyer would view the issue(s). Which may be underestimation of actual cost based on very real problems (some folks are optimists) or a huge overestimation based on the hassle-factor!

A laundry list of small cosmetic things does in fact often excessively affect market. - or not depends on the sub market into which the property fits!

Most Buyers have little or no experience in contracting out work needed, and are frequently overcharged by contractors
- often massively overcharged.
:shrug: depends on whether they hire Johnnie-Pick-up, or a shop which pays vacations, Health insurance Workman's comp, etc.

Not saying that a property owner can't get ripped off but the cost of doing a REAL business is getting up there!

Look in your neighborhood and see how many Auto repair shops there are these days... the difference is that most anybody who wants to put up a ad in the local paper and call themselves a handyman can do so - and disappear overnight - as opposed to a bricks and sticks establishment that someone can toss a brick with a nasty note through the plate glass window out front.
 
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