TraineeGirl needs "Cost to Cure" Help

[StateCertJoe]

I am able to estimate a "cost to cure" for some damages, but where on the report is it entered? Is it a line item? Is it considered and adjusted in condition? Is it just itemized and put in addional comments page? Can anyone answer this for me?

 

[Randolph Kinney]

I am able to estimate a "cost to cure" for some damages, but where on the report is it entered? Is it a line item? Is it considered and adjusted in condition? Is it just itemized and put in addional comments page? Can anyone answer this for me?

There is a difference in the cost to cure and the cost to repair. Cost to cure comes from the market where ideally you have a comp with the same deficiency to use as a matched pair against other comps with out that deficiency.

If you don't have a comp to use as a matched pair, the cost to cure (generally speaking) will be greater than the cost to repair by some factor.

If you need to make that adjustment across the board to the non-deficient comps, you would enter that as a separate line item and deduct it from the selling price.

 

[Howard Klahr]

As you are aware, the is not a formal designated location for this item. You may choose to incorporate it in one of several ways. I assume that you are reporting an "as is" value. Cost to cure can be incorporated into the reconciliation section and you would therefore consider the item(s) having been addressed as you perform each of the applicable approaches to value thereby doing a single deduction just before finalizing the value opinion. You may also incorporate the cost to cure in each of the approaches. The cost approach it would be part of the physical depreciation. The sales comparison approach you could report it as a stand alone adjustment or incorporate it into a condition adjustment. In the income approach it would typically be addressed at the end of the approach as opposed to trying to net it out in the rent analysis since it is intended to be cured in the near term as opposed to an on-going issue.

If you are doing a report on a "subject to repairs" basis you would just note the repir estimate in your report and check the correct box for the reported value. You analysis would presume that the repairs had be completed.

 

[hastalavista]

Your question implies that your specific is an unusual situation or that this is the first time you've faced this situation in a mortgage-finance appraisal reported on one of the GSE forms.

If this is your first time with this situation, I would suggest that you review the situation with a peer (or, if you'd like, describe the full situation here and you'll get plenty of feedback :laugh. I say this because it is my experience that the so-called cost-to-cure (C2C) analysis and adjustment is widely misunderstood and misapplied.

Good luck!

 

[Mr Rex]

I was taught that the Cost to Cure is the actual cost of the repair. This is typically not the same amount as the market reaction that would be adjusted for in the Sales Comparison Approach. The market reaction is typically substantially higher than the actual cost to cure/cost of repair.

 

[Howard Klahr]

The market reaction is typically substantially higher than the actual cost to cure/cost of repair.

If this were true then why wouldn't the property owner fix the item(s)?

 

[Randolph Kinney]

If this were true then why wouldn't the property owner fix the item(s)?

Crack foundation. The repair cost is high. Marketing a home with a crack foundation requires an entrepreneurial incentive + the cost to repair subtracted from the selling price. The likely buyer would be a contractor or property flipper.

Of course there may be a stigma to the repaired cracked foundation requiring more discount.

 

[Walter Kirk]

I normally discuss items needing repairs in my comments on condition, if necessary I create an addendum for these comments. If the items are functional (such as the heater not working) I make the adjustment under Functional Utility. If the repairs required are physical (such as the roof needing new shingles) I include in my adjustment for condition.

Of course these conditions should also be addressed in your Cost Approach.

 

[Mark K]

If this were true then why wouldn't the property owner fix the item(s)?

Doesn't have the cash or credit, the time, the inclination.

Divorce, estate situation.

Does not accept that there is a problem (crazy cat/dog person living with stained, stinking carpet but doesn't think its a problem), etc.

Lots of reasons.

 

[Mr Rex]

If this were true then why wouldn't the property owner fix the item(s)?

Given that logic, why are there ever any issues with a property's condition?