Sales Comparison Grid & Cost to Cure

[Zoe]

Sometimes, never hear back the call and lose the appraisal fee.
Current business climate, appraisers want to do all the appraisals they can get even if messing around with cost to cure.

On new construction, I do it many times to speed things up. I am like let's get to where we need final finish (customer preference stage) and I will come and finish appraisal and go back for final inspection. I finish appraisal and only have to go back for 1004D.

It speeds things up.

 

[Zoe]

Same on this roof situation. Wait a few days til owner or agent told you it was done. I can be there the next day or day after. No problems on subject to.

 

[Mark K]

Look at the other extreme, to understand what is being said. What buyer is going to say that putting a $60K room on a dilapidated house is worth $30K, let alone $60K? A $60K room on top of a house that is about to fall over in a strong wind is worth S-H-I-T. "Super-Adequacy" comes to mind.

So what is your 'market reaction', as a buyer, to a home that needs a $60K roof? We're not talking about contributory value. The discussion is about a C2C. I think most appraisers know that the contributory value of a new roof is likely not equal to the cost.

They are insisting I put a cost to cure adjustment in the sales grid -

In the OP's case, the client wants to know a C2C. A reasonable C2C adjustment would be the cost of the labor to install the tiles currently sitting on the roof.

 

[Charles West]

So what is your 'market reaction', as a buyer, to a home that needs a $60K roof? We're not talking about contributory value. The discussion is about a C2C. I think most appraisers know that the contributory value of a new roof is likely not equal to the cost.




In the OP's case, the client wants to know a C2C. A reasonable C2C adjustment would be the cost of the labor to install the tiles currently sitting on the roof.

That's the way I would do it. Cost to cure adjustment for labor and throw in an inferior condition comp to bracket the subject. Done.

 

[Surf Cat]

So what is your 'market reaction', as a buyer, to a home that needs a $60K roof? We're not talking about contributory value. The discussion is about a C2C. I think most appraisers know that the contributory value of a new roof is likely not equal to the cost.




In the OP's case, the client wants to know a C2C. A reasonable C2C adjustment would be the cost of the labor to install the tiles currently sitting on the roof.

The OP had the guidance of how to handle this on the first page of the thread. This is not for you Mark, it's for the OP based on your premise. I've attached a cost to install estimate here. I don't know where the OP is in Florida so, I arbitrarily choose a Florida zip code and GLA amount. Second item down is labor (you know, what the AMC wanted a C2C for). This, plus an EI amount, cya disclaimer, and he's done.

To have changed the the condition rating, misrepresent the condition of the roof from the original appraisal, not have a single comp like that of the subject and state that "whatever" number he chose for the "severely damaged roof" was market derived is just ludicrous.

 

[Fernando]

Same on this roof situation. Wait a few days til owner or agent told you it was done. I can be there the next day or day after. No problems on subject to.

I would ask the owner how long it take to complete the roof. Should be a couple of days and then make appointment when it's done.
It's just in process of roof work (bad timing) that's causing the problem.
If lender asked why long appraisal appointment, just say owner set that time.

 

[RCA]

It is about the Sales Comparison Grid, which has to do with market value. Market reaction is the increase in market value from some repair or upgrade. As a rule, repairs on older homes never have an ROI above 100%. To understand that, you can consider the impact of putting a new roof on a dilapidated structure - and all shades of grey in between. When a house depreciates beyond a certain point, repairs typically don't make sense - you are better off to tear down the house and rebuild - or something close to that.

Cost to Cure does not really belong in the Sales Grid. But in the absence of better evidence, it can be the basis for some kind of seat-of-the-pants adjustment, documenting its faults and weaknesses and so on and so forth. But if you look far enough back into the past in some densely populated areas like the SF Bay Area, you are likely to find some comps that can be used - with adjustments for the date of sale - or using a percentage of some type.

 

[George Hatch]

It is about the Sales Comparison Grid, which has to do with market value. Market reaction is the increase in market value from some repair or upgrade. As a rule, repairs on older homes never have an ROI above 100%. To understand that, you can consider the impact of putting a new roof on a dilapidated structure - and all shades of grey in between. When a house depreciates beyond a certain point, repairs typically don't make sense - you are better off to tear down the house and rebuild - or something close to that.

Cost to Cure does not really belong in the Sales Grid. But in the absence of better evidence, it can be the basis for some kind of seat-of-the-pants adjustment, documenting its faults and weaknesses and so on and so forth. But if you look far enough back into the past in some densely populated areas like the SF Bay Area, you are likely to find some comps that can be used - with adjustments for the date of sale - or using a percentage of some type.

Categorically and demonstrably untrue, leastwise insofar as known or obvious deficiencies.

Flips and fixers virtually never sell, and nobody can buy, at [as completed - projected costs].

"Needs roof completion" in a listing is going to result in a discount because nobody is going to take on any contingencies for free.

 

[Terrel L. Shields]

I don't know how widely accepted it is- many do not accept it esp if rote and default use as a formula-

You've never owned a copy of "The Appraisal of Real Estate" have you?

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

Cost cost cost - everyone tries to ignore cost - Sales are a look BACK. Income is a look FORWARD. Only COST is here now today.

The market participants perception of its contributory value.

And they base that upon cost - not dissecting the sales they find on Zillow.
As I asked JG above- You've never owned a copy of "The Appraisal of Real Estate" have you?

in the absence of better evidence, it can be the basis for some kind of seat-of-the-pants adjustment,

That is the point. A - where are you going to find "paired sales" outside a huge metro area.
B - I have seen contracts where money is escrowed to repair certain items to a set max or min.
C- the book (real estate appraisal text books - all of the good ones) will tell you that a cost related adjustment is a real thing. The fact is EVERY kind of adjustment has some sort of caveat or flaw. Trend analysis, Multilinear regression, paired sales. On and on.
D - what flippers and rehabbers do is not an issue. They are bottom feeders to begin with. They also are often specialized in making cosmetic repairs that a home owner would not tolerate. I saw one restretch and deep clean a carpet that I had assumed needed replaced. Didn't look bad but a year later it obviously was not much better than I thought it was. Then they may rent to own and sell accordingly. They pay less, they spend less and they make sure they have a cushion - otherwise they lose their butts.

So perhaps I should ask this question....

How many extractions or paired sales do you need to be "accurate"? If you haven't come up with a fireplace adjustment from negative $5000 to $30,000, then you've not done many such analyses. How many times does a paired sale come up $50, $85, and $70... so is the adjustment $50 or $85 a square foot, or what point in-between? That's $35/SF - an $85,000 difference on a 2,400 SF home. These are dart board adjustments. You can justify your choice as SUPPORT for an adjustment, but not as a true accurate PROVEN adjustment. Ditto C2C. It's not exact, but it is SUPPORTED BY REAL COSTS not adjusted by the whim of the appraiser.

If you say "Flippers typically add 20% to the cost as EP" then back it up. You can't. You won't get a contractor to make such a foolish statement. So how do you defend it in a report nor in a court. The truth is flippers don't use the same metrics we do. Not by any stretch.

 

[J Grant]

You've never owned a copy of "The Appraisal of Real Estate" have you?

Cost cost cost - everyone tries to ignore cost - Sales are a look BACK. Income is a look FORWARD. Only COST is here now today.

And they base that upon cost - not dissecting the sales they find on Zillow.
As I asked JG above- You've never owned a copy of "The Appraisal of Real Estate" have you?

That is the point. A - where are you going to find "paired sales" outside a huge metro area.
B - I have seen contracts where money is escrowed to repair certain items to a set max or min.
C- the book (real estate appraisal text books - all of the good ones) will tell you that a cost related adjustment is a real thing. The fact is EVERY kind of adjustment has some sort of caveat or flaw. Trend analysis, Multilinear regression, paired sales. On and on.
D - what flippers and rehabbers do is not an issue. They are bottom feeders to begin with. They also are often specialized in making cosmetic repairs that a home owner would not tolerate. I saw one restretch and deep clean a carpet that I had assumed needed replaced. Didn't look bad but a year later it obviously was not much better than I thought it was. Then they may rent to own and sell accordingly. They pay less, they spend less and they make sure they have a cushion - otherwise they lose their butts.

So perhaps I should ask this question....

How many extractions or paired sales do you need to be "accurate"? If you haven't come up with a fireplace adjustment from negative $5000 to $30,000, then you've not done many such analyses. How many times does a paired sale come up $50, $85, and $70... so is the adjustment $50 or $85 a square foot, or what point in-between? That's $35/SF - an $85,000 difference on a 2,400 SF home. These are dart board adjustments. You can justify your choice as SUPPORT for an adjustment, but not as a true accurate PROVEN adjustment. Ditto C2C. It's not exact, but it is SUPPORTED BY REAL COSTS not adjusted by the whim of the appraiser.

If you say "Flippers typically add 20% to the cost as EP" then back it up. You can't. You won't get a contractor to make such a foolish statement. So how do you defend it in a report nor in a court. The truth is flippers don't use the same metrics we do. Not by any stretch.

I owned it back in the day, and have not had it for years after a few moves, so what?

One of the fundamentals of appraisal is that value does not equal cost (though it can in some cases ).

For some problems CA serves better than but any time the purpose is market value ( a large majority of appraisals ) then it is market reaction that rules - that is why it is called MARKET VALUE