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Unfinished work during an appraisal

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Rudy8

Thread Starter
Freshman Member
Joined
Jan 27, 2008
Professional Status
General Public
State
Texas
How does an appraiser view or evaluate an unfinished repair or cosmetic enhancement to a house while doing an appraisal.

For example, we have some tile falling off the shower walls and at some point the entire tile will be replaced , missing baseboard and unfinished paint in an other bathroom, and 2 rooms that had carpet removed for tile installation later.

Does it matter if the job is currently being worked on?
 

Mike Kennedy

Elite Member
Joined
Sep 28, 2003
Professional Status
Certified Residential Appraiser
State
New York
Yes Rudy, it matters. Accurate description of the CURRENT condition as of the Effective Date of Appraisal is essential.

Depending on the Intended Use of an appraisal report Effective Date for current market value determination on a Site with an Existing Dwelling is the Inspection Date for most mortgage loan purposes.

The apparently Cosmetic Items you cite would typically be included by full description and supporting photos of what the Appraiser visually observed as Deferred Maintenance. Depending on the severity of the deferred maintenance, an estimated $$$ cost to cure (repair/alleviate) the negative impact to is reflected in the current "As-Is" Condition of those elements as part of the Overall Condition Opinion of the Site and the Improvements. The estimated impact on value indicated by utilization of comparables which effectively bracket the subjects' overall condition. The $$ Cost of materials and Contracted Labor necessary to cure the deferred maintenance may return less than, equal, or more than actual cost in Market Value.
 

Marcia Langley

Senior Member
Joined
Aug 26, 2005
Professional Status
Certified Residential Appraiser
State
Missouri
Rudy,

Unfinished repairs and renovations generally fall under the category of 'condition'. Condition of the dwelling does affect the appraisal and can range from having a tiny effect to being a major issue. It depends on the circumstances.

The items, just as you have described them, sound like they would fall into the mid-to-low range of overall effect. Of course, I might change my mind if I actually visited your house. That's why appraisers have to view the property, because just relying on someone else's description is not credible.

Even so, small repairs may not have much overall effect. A lot depends on your neighborhood and the previously sold properties that are available for comparison. If your house is similar in condition to other sold houses nearby, the range they are selling for may be the range of the value of your house.

Also, the way condition items are treated is somewhat dependent on the lender. If the items are not a safety issue, the lender can decide to have the house appraised "as is" in lower condition or require the repairs be completed.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
If I see tile falling off of a shower wall, I'm immediately suspecting water penetration into the surfaces beneath the tile, and seriously considering the cost to renovate the shower. Just an example. Conversely, a home with a few nicks and knocks, that's normal wear and tear.

Condition affects value, and condition is in the eye of the beholder, especially the appraiser. If you think you might be marginal on value, it might behoove you to do some work prior to getting the appraisal. A little money can go a long way in return, especially in a soft market.

Finally, the lender may well make completion of these items as part of obtaining the loan. You might want to check with the loan officer as to their policy.
 

KD247

Senior Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
As Mike and Marcia alluded to, in cases like this, the appraiser has two separate responsibilities: 1) form a reasonable opinion of value and 2) report pertinent information to the lender.

First, whether the loan is for a purchase or to refinance, the appraiser's job is to decide how much a typical buyer would be willing to pay for your property (usually by showing how much buyers did actually pay for similar properties) and to document the process and data that was used to form that opinion.

An appraiser would love to show prices paid for homes exactly like yours, in exactly the same condition and with exactly the same unfinished work. But, when there are no recent sales of exactly similar homes, the appraiser will analyze comparable sales and estimate the typical buyer's reaction to the physical differences between your house and those that sold recently.

Different markets will have different circumstances, so there is no consistent formula for determining the impact of unfinished projects. It's relatively easy to figure the cost to complete the work, but the appraiser must also estimate the additional discount expected for a less-than-perfect house. Sort of like a brand new car with a door ding - most buyers would demand a huge discount if the car is anything but pristine. And, just like car buyers would want more than just repair costs, the hypothetical buyer of your house is going to want more than just the cost of new carpet and tile. They'll expect a discount for their time and trouble and will approach the rest of the house with a more suspicious eye.

Second, in addition to the opinion of value, lenders require additional information that will be used in deciding whether the property is eligible for a specific loan program. The second factor involves the lender's policy regarding repairs, condition, etc. The appraiser must accurately report any observed (or known) problems with the property, whether they have an impact on value or not. If the appraiser suspects additional problems, they may even require that other professionals to inspect the property. Most lenders won't loan on properties that have existing health/safety problems or building code violations, but policies vary between lenders and it is often luck of the draw whether an underwriter gets picky or not.

As you can see, it depends on the specifics of your deal as well as a roll of the dice. You can significantly better your odds by spending some time finding an experienced loan agent who is intimately familiar with your local market and your situation. Every loan agent will say that they're the best, but many will waste your time and money preparing packages for lenders that won't even consider lending to you. A good one will quickly recognize the important factors and know which lender will be best for your situation.
 

Rudy8

Thread Starter
Freshman Member
Joined
Jan 27, 2008
Professional Status
General Public
State
Texas
Thanks!

I really appreciate all your viewpoints on my question, that helps...there will be a little something extra in your Christmas stockings :laugh:
 
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