Unfinished Dwelling/cost To Cure

[MIKE THOMAS]

I have a rural property that is unfinished. The exterior has been redone and an addition added . The inside is incomplete. the walls and paint are finished. Trim done. Flooring incomplete , bath incomplete, kitch cabinets and floor in but no counter top or appliances. the bank has asked me to do an appraisal as is. I intend to due a cost to cure. I would like to know how I handle the sales comparison approach. Should I add a line adjusment for the unfinished work , or put it under condition, or maybe just do the sales comparison and deduct the cost to cure from the final reconciliation. The purchase price is 160,000 . The sales comparison( if finished) would indicate 180000. The cost to cure is 15-20,000.

I need to get this finished tonight, if possible.\

Thanks

 

[Couch Potato]

With the Hurricanes we had last Sept./Oct. I encountered cost to cure issues quite frequently. I put the cost to cure in the condition line of the sales comparison grid and a lump sum in the physical depreciation of the cost approach. Extensive comments were also made.

 

[Jan Roseberry]

I put the same line items in as Greg but rather than write a book I include a construction draw sheet and fill out percent of home complete to give the reader a better idea of what is and what isn't completed. Also, another illustration as to why the condition adjustment is high.

 

[The Warrior Monk]

I'm really careful with this kind of appraisal. There are several things that I take into question. The most important questions is ask are:

Is the house habitable?, and

Does the house have a Certificate of Occupancy?

If the answer to any of these questions is no, then issues of whether or not the home could be financed come into play. If it has to be an all-cash deal, then there will be adverse market reaction which must be reflected in the sales grid.

In my market, an unfinished kitchen with no appliances (namely the stove) is a real problem. I'm also assuming that the incomplete bath is the only bath in the house. Normally, most lenders will not lend on this type of property and thus will require that the appraisal be done "subject to completion."

If the lender still requires an "as is" value, I would subtract the cost to cure (usually in the condition line) and make an appeal adjustment. The appeal adjustment would be dependent on how far along the construction is; the more it's completed, the less the appeal adjustment.

 

[Jim Onderisin]

I'm with David on this one. I'll always call the client after the inspection and describe the state of the property. Many times, they'll want the appraisal subject to completion. If the incomplete items are not structurally significant and not safety issues, they might ask for the appraisal as is. In these cases, I make estimates of completion which are as realistic as possible, and I might weight them more heavily to reflect a buyer's discount when considering purchasing an incomplete property. (There are no $1,000 adjustments for gutted kitchens!) You've got to be careful on these. If the lender gives a $100,000 mortgage on a property worth $70,000 when the borrower defects, you know who they are going to come after for the rest.

 

[Randolph Kinney]

Originally posted by MIKE THOMAS@Apr 10 2005, 09:31 PM
I have a rural property that is unfinished. The exterior has been redone and an addition added . The inside is incomplete. the walls and paint are finished. Trim done. Flooring incomplete , bath incomplete, kitch cabinets and floor in but no counter top or appliances. the bank has asked me to do an appraisal as is. I intend to due a cost to cure. I would like to know how I handle the sales comparison approach. Should I add a line adjusment for the unfinished work , or put it under condition, or maybe just do the sales comparison and deduct the cost to cure from the final reconciliation. The purchase price is 160,000 . The sales comparison( if finished) would indicate 180000. The cost to cure is 15-20,000.

I need to get this finished tonight, if possible.\

Thanks

According to the FNMA Handbook for Appraisers, what you describe requires a "subject to" appraisal. These are not minor defects or deferred maintenance issues.

" ... if ... there are incomplete items or conditions that affect the livability of the property ..."

You can try to do it "as is" with cost to cure however, expect the underwritter to kick that back and ask for a subject to with form 442.

If the bank is going to hold the mortgage, then maybe. If it is going to the secondary market ...

 

[The Warrior Monk]

If the bank is going to hold the mortgage, then maybe. If it is going to the secondary market ...

I do a couple of "as is" appraisals for properties under construction each year. It's always under these circumstances:

1) It's for a private banking service (i.e., the bank holds the loan). This usually means that the person has plenty of money (a few million in assets) in the bank;

2) Loan-to-value is never a question. Generally the loan amount is less than the land value.

I've never had a problem with any of these particular lenders pushing numbers. They want to be sure that they can recapture their investmest if things go bad.