What are some key things you look for in residential when determining the condition rating? Specifically the C5s and C6s

[Jwalker]

C1 and C2 are easy, deciding between C3 to C4 can be tricky but still not that bad.

The C5 and C6 ones are the really tricky ones because at this point this will determine if someone is able to get financing through the secondary market. We work in rural Texas and well... some people take the "living in a cardboard box" thing a little to literally here. Once you leave the city limits there are no rules as to what you can call a residence and even some cities with no zoning will have some literal shacks. My question is at what point does something get flagged as a C5 (some places will still offer mortgages on C5s) or even C6. This home I saw yesterday is really bad, only two lights work (one in kitchen and one in the bathroom), both exterior doors are rotting in the door itself and the frame, the ceiling is sagging in a couple places. The floor is soft in most every room. The siding is rotting in several places, the kitchen sink works but it's hooked up to drain in to a big plastic barrel outside. The septic system is grandfathered but it's just a lateral line system from the 50s. There's holes in the walls, the interior door frames are rotting and the doors don't work. Yet people are still living here, and there's lots of people living in similar type homes so it's not unusual. There's no zoning so there's no way for the home to get condemned that I'm aware of. It does have heat and AC through two window units and a gas space heater. The stove is cheap but newish.

Used to C6 at our office was reserved for something that's "not habitable" but that definition varies based on who you ask. I think the biggest thing that is keeping me from immediately flagging this a C6 is that the roof does not appear to actively leak which is shocking. Anyway I wanted to see how other appraisers approach homes like this. Value is actually fine btw.

 

[DWiley]

https://sf.freddiemac.com/faqs/appraisal-report-FAQ

• Q8. Freddie Mac will not purchase or securitize a Mortgage if the appraiser reports the condition rating of the property is C5 or C6. Can Freddie Mac provide additional examples of property conditions that result in unacceptable collateral?​

  In addition to the examples provided in Guide Section 5605.5(a)(ii), below are additional examples of adverse conditions that must be remedied prior to delivery of the Mortgage (unless the repairs are to be made as part of the CHOICERenovationSM product). It’s important to note that the additional examples provided below are not a comprehensive list of all the scenarios that may be encountered, which could result in an ineligible property.
  The following examples are not meant to imply that minor damage, typically considered deferred maintenance, results in the property being ineligible. Appraisals on properties with minor deficiencies may be completed “as is” as described in Guide Section 5605.5(a)(iv)
  • The property has a marginally operational kitchen and/or bathroom(s) as a result of disrepair (e.g. missing cabinets and/or countertops)
  • Missing or damaged exterior siding or soffits that would allow water or other elements to enter the dwelling
  • Window frames, siding, soffits, etc. that have evidence of wood rot which impacts the structural integrity of the property
  • Roof and/or framing of the porch, covered patio, screened porch, deck, or similar feature is in disrepair such that normal use is adversely impacted, or the structural integrity is questioned
  • Missing or damaged gutters or downspouts that would allow water to enter the dwelling and impact the structural integrity of the property if not replaced or repaired
  • Missing or damaged interior drywall or plaster which impacts functional utility
  • Damaged floor coverings such that the subflooring is exposed and impacts functional utility
  • Roofing materials show obvious deterioration such that the roof has exceeded its life expectancy and no longer ensures the structural integrity of the dwelling
  • Standing water in the basement
  • Missing railings at open areas (e.g. stairwell, loft, foyer, etc. such that they are exposed to an open area)

 

[Terrel L. Shields]

People are capable of living in tents, campers, barns, etc. I've seen people who made a chicken house into a "home" - more than one I might add- and I've seen at least 3 dairy parlors turned into houses. I've been in houses were the floors were being taken up one room at a time to rebuild the termite rotted floor joists. And I cannot count the homes where years after constructed had no closet doors or trim, etc. Inhabited is not a good metric to measure by. In my opinion, these generally have "value is use" but none in the market - they are worth whatever the land is worth. And I believe therefore as you describe, it easily rates a C6.

 

[J Grant]

C1 and C2 are easy, deciding between C3 to C4 can be tricky but still not that bad.

The C5 and C6 ones are the really tricky ones because at this point this will determine if someone is able to get financing through the secondary market. We work in rural Texas and well... some people take the "living in a cardboard box" thing a little to literally here. Once you leave the city limits there are no rules as to what you can call a residence and even some cities with no zoning will have some literal shacks. My question is at what point does something get flagged as a C5 (some places will still offer mortgages on C5s) or even C6. This home I saw yesterday is really bad, only two lights work (one in kitchen and one in the bathroom), both exterior doors are rotting in the door itself and the frame, the ceiling is sagging in a couple places. The floor is soft in most every room. The siding is rotting in several places, the kitchen sink works but it's hooked up to drain in to a big plastic barrel outside. The septic system is grandfathered but it's just a lateral line system from the 50s. There's holes in the walls, the interior door frames are rotting and the doors don't work. Yet people are still living here, and there's lots of people living in similar type homes so it's not unusual. There's no zoning so there's no way for the home to get condemned that I'm aware of. It does have heat and AC through two window units and a gas space heater. The stove is cheap but newish.

Used to C6 at our office was reserved for something that's "not habitable" but that definition varies based on who you ask. I think the biggest thing that is keeping me from immediately flagging this a C6 is that the roof does not appear to actively leak which is shocking. Anyway I wanted to see how other appraisers approach homes like this. Value is actually fine btw.

Stick to what the C ratings state. Don't concern yourself with whether the property is eligible for financing-that is the lenders' call. We should not base our judgement wrt a condition rating on whether somebody is currently living in the property . Some lenders require a C 5 property be done subject to repair to C 4 condition - so check your client client if a C 5 should be done " AS IS" or subject to bring to C 4 condition.

C5 The improvements feature obvious deferred maintenance and are in need of some significant repairs. Some building components need repairs, rehabilitation, or updating. The functional utility and overall livability is somewhat diminished due to condition, but the dwelling remains useable and functional as a residence.

What might the above look like ? An older roof near end of economic life or roof with worn/peeling tile but no leaks or minor leak,, a broken window held together with tape, or non working appliances etc. Not every component has to need a repair or replacement, but enough would do to meet the C 5 threshold. A personal test I use wrt HBU, is it more likely the house would be repaired than torn down? Does the cost of repair look like it will be recouped at sale ?( cureable )

C6 The improvements have substantial damage or deferred maintenance with deficiencies or defects that are severe enough to affect the safety, soundness, or structural integrity of the improvements. The improvements are in need of substantial repairs and rehabilitation, including many or most major components.

Again, follow it literally defects or defincines severe enough to affect the safety, soundness or structural integrity. What might that look like ?A roof with a giant hole where water poured in,flooded the house and is causing mold ( for an example ). the cost to repair or replace is imo greater than would be recouped on sale ( not curable ). The most likely HBU is often to raze the house and tear it down for land value.

 

[J Grant]

For example

A 30 year old C 5 bathroom has older/dated original cabinets and toilet/tub but it is still functional, or has a toilet not working but easily fixed . It can have some chipped or missing tiles but the floor is safe to walk on and not compromised.

A 30 year old C 6 bathroom has older/dated original cabinets and toilet/tub but the toilet is is torn away from the wall. It can have some chipped or missing tiles significant enough to make the floor unsafe or buckling.

 

[sputnam]

Read the definitions of the Quality and Condition Ratings. Read them again.... and thenm use your judgement to select the rating that best fits the observed condition of the improvements. If you still can't decide, persuade someone with more experience to look at the property and advise you.