Cost-to-Cure Appraisal Estimates

by Administrator on Aug 3, 2016

Appraisers are often put into situations in which they must estimate the cost-to-cure various items of deferred maintenance or the cost to remediate physically curable depreciation.  Experienced appraisers can generally estimate the cost of repairs to a home or even to a commercial property without having contractor bids, but are the estimates appraisers conclude accurate? 

When you are in this situation, having to estimate repair costs, it's a good time to look for additional sources of data and expert opinions to rely upon.  Appraisers are generally not roofing experts they usually don't get involved with flooring replacements or parking lot resurfacing, but we often do have to estimate the replacement cost new cost new (RCN) of many of those improvements by using cost manuals. 

Most appraisers are willing to look at owner supplied repair cost estimates before they begin their analysis.  If the estimates appear to be reasonable, I always check them against the cost manual, they may be included in the report.  If the cost manual says paving is $ 2.20 per square foot X 10,000 square feet or $ 22,000 and the contractor's estimate says $ 50,000 then it's time to find out why there is such a substantial difference.  Most cost manual estimates include the cost of both labor and materials.

Most appraisers have studied the contributory value of amenities since the contribution of amenities has to be quantified to make reasonable adjustments in their appraisal reports.  So appraisers understand that large expenditures made for cosmetic purposes generally do not convert to value on a dollar-for-dollar basis.  So you can finish that industrial mezzanine to look like a palace but buyers are not going to pay you much for those marble floors and columns.  I have personally seen some seriously over improved, or as appraisers would say "super-adequate," improvements in buildings that I have appraised.

Most cost-to-cure estimates that appraisers calculate have to do with significant property problems.  Many properties have deferred depreciation related to their depreciated parking lots, their depreciated interior condition and for the depreciation of exterior items like roofing.  Appraisers can reasonably estimate what it will cost to replace roofing, but having a contractor bid to support their estimate lends to the estimates credibility.   Most appraisers want as much support for their cost-to-cure estimates as they can find.

Appraiser cost-to-cure estimates are usually based on current cost data with third-party contractor estimates considered.  Appraisers are not however building inspectors.  Appraisers do not test for radon, they do not generally identify asbestos and they don't usually walk on and photograph the roof.  They do not test A/C equipment, dishwashers or ranges, it simply not something that appraisers do.

Appraisers often note in their appraisal reports that "a building inspection is required," or they note that "a building inspection is suggested" and many note that their market value opinion is expressed "subject to an appraisal inspection."   Other appraisers state in their reports, if they suspect problems exist, that "the appraiser reserves the right to modify the appraisal opinion if an inspection identifies significant physical or functional problems."

Most appraisers don't take repair estimates that are provided to them by owners at face value.  When an owner provides me with a cost-to-cure estimate for roofing replacement, for example, that I cannot verify I will discuss the fact that "the owner provided a repair estimate that the appraiser did not verify" in my report.  I provide a market value and a second value that considers the owner identified problems, and I note that I could not verify that the problem or problems existed.

Properties with many repairs needed can have significantly reduced an appraises market value opinion.  If, for example, a property clearly needs a new roof, new flooring, updated plumbing and an updated electrical system the cost of those items can reduce its value by hundreds of thousands of dollars.

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.valuationarticles.com/Report-Writing/4-Cost-to-Cure-Appraisal-Estimates.html

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