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Appraising Homes that are Being Remodeled

by Administrator on Aug 9, 2016 Residential Appraisal 625 Views

It's not unusual to find that the home that you have been asked to appraise is being remodeled.  I find some properties with flooring removed, others with partially finished additions and some stripped down to their interior stud walls.  What you are told before you arrive at a home and what is actually there when you get there can be two entirely different things.  I try not act surprised by what I find but there are times that I can't hide what I'm thinking.

Most home buyers want to purchase a home that needs no repairs, and things like missing flooring or missing drywall will make them turn around and walk right out of a home that is for sale.  Agents know that buyers will reject a home for things like the wrong colors or what is in their opinion the wrong decor.  Having partially completed areas or partial remodeling is like selling an automobile with an engine that doesn't start.  Telling them it runs fine but doesn’t start doesn’t help.  It's a tough sell because people imagine that it will take much more time and money than in reality it actually will to "put it right."

I have had buyers reject a home simply because "it didn't feel right."  So homes with serious deferred maintenance like rotten eves, water damaged drywall, worn out roofing, worn flooring and / or dated kitchens are usually rejected without even being seen.  The multiple listing service photos are enough buyers don't need to actually see the problems in a home to know they don't want to deal with them.  What buyers want to hear is that a property is in "excellent condition" and that it is "move-in ready."

Most owners understand that leaving large repairs unfinished will cost them even more than the repairs so they take the time and effort to get things fixed before they list or offer their property for sale.  Spending money on upgrades can often be lost, if you upgrade the kitchen just because you want it to be new when it was average before you may not get your money back.  If, however the kitchen really needs to be replaced, and potential buyers have to will take exception to its condition, spending the money for the kitchen remodeling may get you back every dollar spent plus a bonus.

When I'm looking as an appraiser for the cost of repairs I try to consider what it will take to bring a property back to an average condition, similar to the condition of competitive properties in the market.  Cost manuals provide costs per square foot or per linear foot and the costs in the manuals combine both materials and labor.  If you look at the value of a home immediately before an event and the cost repaired immediately after, like the IRS does, you miss the fact that buyers do not want to make repairs and that many potential buyers will avoid a property with problems so the marketing time associated with a property is often extended if it is not immediately repaired.  Thus there is a loss associated with added marketing time.  Also often missed or not considered is the fact that there is an entrepreneurial profit associated with the cost of repairs.

Estimating costs to repair or replace parts of a home is not an exact science.  If you have five contractors visit and offer you repair estimates I would bet that you will receive five entirely different figures, and appraisers who are not in the construction business will give you their own cost opinion with reservations.  Many owners who recognize that their properties need work get multiple estimates so they can get a range of costs.

Most homes that appraisers run across during their normal course of business don't require significant repairs.  Your typical home in my area for example may have some worn flooring, it may need its eves painted or it may need it's exterior or interior painted but generally they don't have major roofing leaks, holes in the walls or electrical / plumbing system problems.  A home is considered old here when it hits 50 years old and the median age is probably only 10 years.  So appraisers here usually don't have to deal with the issues that appraisers do in small town USA where asbestos, lead paint, radon and a number of other problems can exist.  There are few homes here with basements so most problems are obvious and not hidden.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/Real-Property-Appraisal/Real-Property-Appraisal/Residential-Appraisal//4628-Appraising-Homes-that-are-Being-Remodeled.html

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