cost to cure
167) Cost to Cure
11/28/07
Dear H2,
Am I obligated as an appraiser to include either cost to cure (which I know includes entrepreneurial profit) or cost to repair (which does not) estimates in my reports? Or only when requested by the lender? I cannot find any guidelines in USPAP which address this issue. Thank you for your time. Yours is an invaluable site.
Ryan Ryan.appraisalguy@gmail.com
Dear Ryan,
There is nothing in the USPAP that requires you to provide a breakdown of the cost to cure items that should be cured.
However, many lenders request this information as part of their scope of work. If it is requested, I think you should provide what they request. If you use the cost approach, you should consider the cost the cure those item that you include under "physical deterioration -- curable". And I agree -- I think the cost to cure should always include a reasonable profit for whoever would do the work.
H2
Am I obligated as an appraiser to include either cost to cure (which I know includes entrepreneurial profit) or cost to repair (which does not) estimates in my reports? Or only when requested by the lender? I cannot find any guidelines in USPAP which address this issue. Thank you for your time. Yours is an invaluable site.
Ryan Ryan.appraisalguy@gmail.com
Dear Ryan,
There is nothing in the USPAP that requires you to provide a breakdown of the cost to cure items that should be cured.
However, many lenders request this information as part of their scope of work. If it is requested, I think you should provide what they request. If you use the cost approach, you should consider the cost the cure those item that you include under "physical deterioration -- curable". And I agree -- I think the cost to cure should always include a reasonable profit for whoever would do the work.
H2
31) Cost to Cure
12/30/06
This happened to a friend and we are both really
anxious to hear your response. My friend went on an
inspection of a property where the roof was not
completed -- just the paper underneath was on. She
called her client and they said to proceed with the
cost to cure. She appraised the property "as is" with
the extraordinary assumption that the roof is
complete. The lender called her back after she
submitted the file and wanted her to adjust for cost
to cure in the sales comparison grid section.
Therefore, all the comps were adjusted down for
$78,000. Why would they want her to do that and is
that correct? Please let us know your opinion.
Gina Capps gcaps@tampabay.rr.com
Dear Gina,
This is a good example of what happens when the client tries to change the scope of work after the assignment is started and there is no clear understanding of what the change is to be. Changing the scope of work is permitted by the USPAP.
I assume that the initial scope of work was to appraise the property "as is" , as of the date of the appraisal. There probably was nothing mentioned about acceptable hypothetical conditions. When the roof problem was found and reported,from what you say, your friend thought the client had changed the scope of work and wanted the appraisal to include a hypothetical condition that the roof would be repaired.
The client appears to have wanted an "as is" appraisal without any hypothetical conditions. To make an "as is" appraisal it would be necessary to estimate the cost to fix the roof and then make an adjustment to the comparable sales considering both the cost to cure and also how the market would respond to the need to fix the roof. (It would not be correct just to use the cost to cure as the adjustment.)
I can see nothing wrong with the client wanting this type of appraisal. There are many possible reasons why they would want it.
Sincerely,
H2
Gina Capps gcaps@tampabay.rr.com
Dear Gina,
This is a good example of what happens when the client tries to change the scope of work after the assignment is started and there is no clear understanding of what the change is to be. Changing the scope of work is permitted by the USPAP.
I assume that the initial scope of work was to appraise the property "as is" , as of the date of the appraisal. There probably was nothing mentioned about acceptable hypothetical conditions. When the roof problem was found and reported,from what you say, your friend thought the client had changed the scope of work and wanted the appraisal to include a hypothetical condition that the roof would be repaired.
The client appears to have wanted an "as is" appraisal without any hypothetical conditions. To make an "as is" appraisal it would be necessary to estimate the cost to fix the roof and then make an adjustment to the comparable sales considering both the cost to cure and also how the market would respond to the need to fix the roof. (It would not be correct just to use the cost to cure as the adjustment.)
I can see nothing wrong with the client wanting this type of appraisal. There are many possible reasons why they would want it.
Sincerely,
H2
29) Added Value, Not Cost To Cure
12/20/06
Dear Henry,
The appraisal company that I work for does a lot of REO/forclosure work. When making the adjustments for condition should the amount of the adjustment be the same as the cost to cure for repairs or a different figure?
Thank you for your help.
Ann Hughes bananapup1@msn.com
Dear Ann,
An adjustment is always based on how much value it adds (or subtracts) from the property. What it costs can be considered but just using that figure is not sufficient.
For example, if the paint on the trim around the front door was in poor condition, it would cost very little to fix it up. A Realtor trying to sell the house would tell you that most likely it would add more value to the house than the cost to repair. On the other hand, gold plated plumbing fixtures rarely add value equal to their cost. You have to consider the value difference every time you make an adjustment for any reason.
H2
The appraisal company that I work for does a lot of REO/forclosure work. When making the adjustments for condition should the amount of the adjustment be the same as the cost to cure for repairs or a different figure?
Thank you for your help.
Ann Hughes bananapup1@msn.com
Dear Ann,
An adjustment is always based on how much value it adds (or subtracts) from the property. What it costs can be considered but just using that figure is not sufficient.
For example, if the paint on the trim around the front door was in poor condition, it would cost very little to fix it up. A Realtor trying to sell the house would tell you that most likely it would add more value to the house than the cost to repair. On the other hand, gold plated plumbing fixtures rarely add value equal to their cost. You have to consider the value difference every time you make an adjustment for any reason.
H2