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subject to repairs

At least read this part of the appraisal

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I know, nobody actually reads appraisal reports. Well, except for one thing – the value. But let’s talk about a critical place to look in an appraisal that can make all the difference. I have a story to share too about why this even matters.

BONUS: Check out the new new sales volume graphs below.

Look for these boxes: The bottom of page two in the appraisal has a few important boxes the appraiser can check, and these boxes help show if the value is “as is” or if there are required repairs, inspections, or other conditions. My advice? Be sure to look at these boxes carefully as well as any commentary listed in the space below (or the addendum if it says “See Addendum”).

If the value is “as is”, the appraiser is saying the property is worth that amount without any required repairs or further inspections needed.

If a “subject to” box is checked that likely means the value has already taken into consideration certain repairs or that the property will pass a future inspection (maybe a pest inspection, foundation inspection, two-year roof certification, etc…). So if an owner does the repairs listed, it doesn’t increase the value because the value was already based on the repairs being made.

In short, if you see a box checked besides “as is”, that’s a clue there is more to understand about the value.

An example of why this matters: A real estate agent uploaded an appraisal I did into MLS. This appraisal was completed for a lawyer and the value was not “as is”. In fact, this property had extensive damage, but the attorney asked me to value the property as if it was in average condition. This was spelled out blatantly in my report by using the boxes above (and in other places).

The problem here is the selling agent may not have realized the appraisal was not “as is” because the listing said something like, “Appraised at $670,000 in August 2018.” Yet the property was listed for $100,000 less because it was being sold “as is.” So the question becomes, could this be a liability for the agent? What if an out-of-town buyer bought based on thinking he/she was getting a discount because of the attached appraisal? Also, does this expose the appraiser to liability or reputation damage if people are reading the report and not understanding the value isn’t “as is”? I’m not a lawyer, but something doesn’t quite smell right here.

I’m not trying to make a big deal out of this, but sometimes details matter, so I caution real estate friends to look closely at the appraisal to understand the value. By the way, the agent was cool about removing the appraisal when I reached out about this.

The Big Point: Please read the bottom of page two to understand if the value is “as is” or if there are repairs built into the value. That can make all the difference.

I hope this was interesting or helpful.

SALES VOLUME SLUMPING: On a different note, here are some graphs I made yesterday to tell the story of sales volume slumping 11% in the Sacramento Region. I included a graph from 2005 also in case you’re wondering what volume did when the housing market imploded.

Questions: Any stories to share? Do you look at the boxes I mentioned above? When is it okay and not okay to upload appraisals in MLS?

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There is more than one way to skin an appraisal

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There is more than one way to skin a cat, right? I’m not sure who came up with that saying, and I know it’s graphic, but the point is there are often many paths to finding a solution to a problem. The same is true with appraisals. If you give me a minute, I’d like to share a few of the different ways to appraise a property. This might help you with a situation you’re dealing with too. By the way, I do have an orange tabby cat, and his name is Rambo.

new construction appraisal - using hypothetical condition - by sacramento appraisal blog

Here are a few options appraisers have available. Some of these will relate well to loan appraisals and others might be more geared toward private appraisals.

AS-IS: This is probably the most common way to appraise a property – just as it is. The appraiser will consider whatever is there and the value will reflect the property in “as is” condition. There will be no repairs made at all.

SUBJECT TO REPAIRS: A property can also be appraised as if repairs were already done. Take the photo below as an example. During the inspection I noted obvious roof damage (there was a leak) and the AC unit was missing. Upon calling my lender client after the inspection, they instructed me to appraise the property “subject to repairs” being made. This means I gave a value to the property as if the roof damage and AC unit were already fixed – even though they were not. Then when the repairs were actually made, my client had me go back out to verify they were completed. In cases like this a lender is probably going to want to see the repairs made before the loan can close.

Before-and-After-Repairs-for-Appraisal

EXTRAORDINARY ASSUMPTION:  This is when an appraiser assumes something to be true about the property for the sake of analysis even though the appraiser does not know for sure that it is true. For instance, if an appraiser is not allowed to inspect a couple bedrooms in a house, the appraiser can make what’s called an extraordinary assumption. This means the appraiser can assume the rooms are in average condition despite not seeing the rooms (sometimes “locked” rooms are being used to grow pot). The appraiser has to believe the rooms are actually in okay shape, and the client should be on the same page for the appraiser to use such an assumption too. An appraiser really does the same thing with a “drive-by” appraisal because the appraiser has not seen the inside of the house, but is assuming it is in decent shape based on partial information from Tax Records, old MLS listings, an inspection from the street or other sources. Keep in mind many times a lender will not be okay with an appraiser using an extraordinary assumption, which means they want the appraiser to see every room. But in the case of private appraisals for Date of Death, divorce or bankruptcy, an extraordinary assumption is more commonplace.

Junologo

RETROSPECTIVE VALUE: This type of value analyzes a date in the past despite inspecting the property today. This is common for IRS appraisals where the appraiser gives a value based on the date when the property owner passed away. It’s also common with divorce appraisals if the appraiser is rendering a value based on the date when papers were filed. For example, I was hired this year to give an owner a value for a date in 1996 for tax purposes. Instead of using time travel to get back to ’96 (when I used to use Juno for email), I simply inspected the property after I was hired, and then used very old data to come up with a value based on what the market was doing in 1996.

roof-with-blue-tarp-photo-by-sacramento-appraiser

HYPOTHETICAL CONDITION:  This is when an appraiser considers something as fact for the sake of analysis even though it is not true. An appraiser does this regularly for a new construction appraisal like in the first photo above. Despite the house not being there yet, the appraiser can observe a builder’s plans and appraise a 3000 sq ft house even though it does not exist. Another example would be a client asking an appraiser to appraise a house without a roof as if it had a roof. Maybe there is some sort of insurance claim, lawsuit or repair loan going on. In a case like this the appraiser would simply use a hypothetical condition, meaning the appraiser would appraise the house as if it already had a roof even though it does not. Whenever appraisers use a hypothetical condition, it should be okay with the client in the first place and then made VERY clear in the report so the client and any readers knows what the appraiser has done.

Question: Any questions, stories or scenarios to share? Which methodologies have you encountered? Comment below.

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