Sales Comparison Grid & Cost to Cure

[J Grant]

Is it your contention that the all of the adjustments in the sales grid must be based on comps? I think a lot of appraisers would disagree.

In your case, you'll need to find comps with tile shingles piled on the roof to make a supportable adjustment. (BTW, I was just in the Ft. Meyers/Punta Gorda area and saw a LOT of homes with shingles piled on the roofs and nobody was doing any installing.)

Making an adjustment for C2C in the sales grid based on an cost estimate (including profit and EI) is a longstanding and widely accepted method. Oftentimes, it is the only reasonable approach.

I don't know how widely accepted it is- many do not accept it esp if rote and default use as a formula-
Unless an appraiser can support that the C 2 C is also the approximate market reaction IMO it can be flawed -

Because if the repair or finish etc is substantial enough to materially affect value, at different times we see market reaction as below cost, or above cost, or at the equivalence of cost,


Value is related to identifying the typically motivated buyer = property flippers and re rehabber like to pay below cost, owner occupants with money who want a 100% finished / renovated place will pay far above cost and an average owner occupant who might take on a small completion or repair project will often pay the equivalent to the cost to fix or finish.

 

[Mark K]

Unless an appraiser can support that the C 2 C is also the approximate market reaction IMO it can be flawed -

What do you think the 'market reaction' to a needed repair is based on?

 

[Surf Cat]

If I had an appraisal report come back on my house where I had the roofing in process to include; new sheathing, flashing, drip edges, underlayment, with the roofing material piled up ready to be installed as "severely damaged"...I'd be all up in somebody's a**. Everyone here knows what rolls down hill and where it's going to pile up too.

 

[RCA]

I am challenging the responses. My opinion is that cost based adjustments do not belong in a comparative analysis - so I wanted to see what other appraisers thought about this. I think the lender / client is wrong to insist that we provide adjustments of this type in the sales comparison grid, but was open to the possibility I was incorrect. Requesting and challenging other appraisers perspective seemed like a good way to determine whether I was correct. So far I have not read a response that justifies the use of cost based adjustments in a comparative analysis - only criticism, capitulation, and alternatives. The alternatives seemed most reasonable to me, which is why I elected that methodology.

I do appreciate everyone's input though - even the negative. If I can defend my work against you all then I figure I could defend it against the board.

You have the right mindset. The other appraisers are flailing their lack of proficiency - and we can excuse them for trying as hard as they can, as that is all they can do.

 

[TekJ42]

What do you think the 'market reaction' to a needed repair is based on?

The market participants perception of its contributory value. Swimming pool cost is not (necessarily) equivalent to its contributory value. Renovated bathroom / kitchen cost is not (necessarily) equivalent to its contributory value. A $60K roof does not necessarily contribute $60K to the value. In my market properties frequently sell for a lot higher than replacement cost, and renovations almost never effect value at a 1/1 ratio.

 

[J Grant]

You have the right mindset. The other appraisers are flailing their lack of proficiency - and we can excuse them for trying as hard as they can, as that is all they can do.

Your arrogance holds no bounds!

Meanwhile, you are trying to make all the sales prices come out equal as adjusted in your method, correct ?

 

[Fernando]

First of all, the owner is not the client, I wouldn't tell them anything. Secondly, the lenders don't know the particulars of the subject property. They just want to process the loan. They send us out for that. Maybe the borrower withheld vital information....lots of unknowns.

That's my point. It's not my job to ask these questions. Why couldn't the loan agent screen or aware of criteria of these "problem" loans. Maybe I'm more experienced having worked as a loan agent at one time and also past appraisal experience with these issues.

The OP should have contacted the lender, but he didn't. Either he makes the appraisal as is with a cost to cure or he refuses and loses a client. It's pretty simple.

 

[RCA]

Your arrogance holds no bounds!

Meanwhile, you are trying to make all the sales prices come out equal as adjusted in your method, correct ?

Most of the explanations I have seen here are flawed. They break one principle after the next. They make assumptions about buyers and so on and so forth. We want simple market value for the sales grid and what we get are poor substitutes.

The problem with cost to repair is that the value of a new upgrade on an old structure is not necessarlily ( or likely ) the same as the value on a new structure. You need market reaction - and for that you need comps.

You need to be logical. And you have never never ever achieved that goal.

 

[Mark K]

A $60K roof does not necessarily contribute $60K to the value.

Agreed. But if a roof is fully depreciated and needs replaced any buyer will want to know the cost to cure/repair and this cost will be reflected in any purchase. No buyer is going to say...'I know the roof will cost $60K but my market reaction to this amount is only $30K'. (That reeks of the same concept that a 'market reaction' of sales concessions is something other than a $4$, but that's another running disagreement on the forum.) Now, they may say that the hassle factor of replacing the roof demands a premium and the cost may be more than the $60K (EI) but, overall, the cost is the basis for the adjustments.

 

[Surf Cat]

The market participants perception of its contributory value. Swimming pool cost is not (necessarily) equivalent to its contributory value. Renovated bathroom / kitchen cost is not (necessarily) equivalent to its contributory value. A $60K roof does not necessarily contribute $60K to the value. In my market properties frequently sell for a lot higher than replacement cost, and renovations almost never effect value at a 1/1 ratio.

That's not my quote you're commenting on. That's Mark K's from post #92. Yet another misrepresentation. You're on a roll, keep it going. You and RCA can walk hand in hand into the sunset together. Who needs clients when you're smarter than everybody else?