Having lived in Clairemont let me say, its still not a good deal, regardless of the amount of the price drop. Clairemont tracks the median pretty well and so while its a significant sticker price re-alignment its still to expensive for that area.

Second selling a fixer in this market is going to be tough.

Josh

“Property was n the middle of a remodel that was not completed” can be interpreted as “interior is a shell; all new finishes are required.” Even if you skip the granite counters and travertine floors this could easily be a $75,000 cost to complete.

Appraisers can and do appraise properties in varying stages of completion on a regular basis. If an appraiser declined to finish an appraisal because of a missing bathroom sink it has nothing to do with whether or not they are capable of appraising the property that way. Almost certainly, the appraiser was aware that their client would not be able to fund the loan they were seeking for that property under their loan propram.

The most favorable loan terms go with loan programs that have specific requirements about borrower qualification and collateral quality. From there the terms get less favorable in relation to the wrinkles the deal presents. There are loans for properties in varying conditions, including pre-construction, but the terms for those programs are not as favorable as the programs that require an intact home.

With the unfinished bath, your otherwise perfect home became a square peg. The lender could have chosen to have the appraiser make the appraisal subject to the completion of the bath (or the remodel), but that almost always results in the lender retaining and controlling the funds used to complete the repairs. Another option would be to lend on the property in it’s “as is” condition, KNOWING that if they have to take the property back they’re going to need to complete the repairs themselves.

Either of those two alternatives will net less to the property owner, and the appraiser was probably aware or was possibly instructed that this would kill their client’s deal, so there was no point in completing the appraisal. The only way that loan would have been made under those terms would have been if the appraiser had lied about the condition of the home, which I’m sure is not what the property owner here would have wanted.

Anyways, back to the remodel in Clairemont Mesa, The financing of this property will likely involve a construction loan at those terms with the lender retaining fund control over the costs to complete, so the price probably reflects an anticipation that upon completion the home will be worth about $500k or more. It should not be interpreted as meaning prices for this area have dropped to the low $400k ranges.

There’s really no excuse for either of these appraisers to do what they did and just hearing about it pisses me off. These are the guys who are ruining my standing in the community as an appraiser. “Doesn’t matter” is a decision for the lender to make, not the appraiser.

This is an example of the problems appraisers face on a regular basis. What the appropriate terms for a loan are for a house with an incomplete 2nd bathroom is a lending decision, not an appraisal decision. But the reality is that many of these loan originators don’t want to go to the extra effort and work to make and justify that decision. They just want their deals to look clean so that their job is easier. Every appraiser has stories about lenders asking them to remove negative information about the subject property (lie by omission) from their appraisal reports because the offending information will “kill the deal”.

If it really was just a sink, the appraiser should have included the photo, estimated the cost to cure at less than $500 and say it would have no material affect on either value or marketability (which is 100% true) in the market. Then let the lender make their own decision and take responsibility for that decision. Instead, this lender was most likely pressuring the appraiser to lie for them so that their decision would be easier. I can virtually guarantee the appraiser didn’t just do this of their own accord.

It’s still no excuse, though.

I just looked this property up and the story gets worse in some ways. Apparently, the bank is into the property for $487k, so even if they sell at $390k they’re taking a loss of $100k.

The property does back to a canyon, so it would have some view, but everything else looks rough. It’s not a shell – the pics in the MLS listing show what appears to be the original kitchen.

I looked up sales from the last 4 months and they range from a low of about $420k (another bank-owned foreclosure) to $550k for the fabulous remodel with canyon location and very nice landscaping. I reckon our subject would require a solid $75k+ in hard costs to equal this one. There are a bunch of sales in the $460k ranges, so with the canyon view let’s call it an even $500k if refurbished to average condition at minimal expense.

At $500k we’re talking about replacing the dated 1959 kitchen and bathrooms with very average quality Home Depot replacement fixtures and appliances. Some minor drywall and celing repairs (at least) and possibly a new roof or some exterior repair – one or the other but not both. All new paint and average quality flooring, and a little landscaping, particularly in the rear. You might be able to get all this done for $35k in hard costs, although $50k could easily happen. Let’s split the difference and call it $40k in hard costs.

So the cost to cure is $40k; the costs of sale at $500k would be $20k if at 4%; the property tax payment that’s due in April would be $3,450 because it would be based on the prior sale price at $575k; and figure another $400 for insurance. If the property was financed with a construction loan to do the remodel (non-owner occupancy) we’re looking at probably a $300k loan with construction loan terms, so that would equal $2,200/month even if it was interest-only; and we can figure at least 30 days to complete the remodel and another 5 months to sell and close the property – that’s 6 months, or $13,300 by my reckoning.

So without considering any profit, here’s what a potential flipper is looking at: $40k (rehab) + $20k (cost of sale) + $3.5k (Tax/Ins)+ $13.3k in holding costs. All that adds up to $76,800.

But wait, there’s more: We’re in a declining market and we could easily be looking at another 3% (~$15,000 from $500k) decline over the next 6 months; and the above costs include no contingency for unforeseen expenses (~$6,000 at 15% of costs) that commonly occur with remodels. So that’s another $21,000 in addition to the $76.8k. So now we’re at $97,000 in combined costs. Our investor has already sunk $90,000 in down payment, has spent 30 days physically putting the house together and has sweated the declining market for another 5 months before closing. You KNOW an investor isn’t going to go through all this without a payday, and considering all the risk and effort and costs and lack of liquidity of their own down payment, you KNOW that payday has to be at least $50k to make this worth their while.

Bottom line here is that if anyone buys this property for less than $350k they’re either taking some big risks or… well, there is no “or”.

Just food for thought:

Don’t forget, if the property is damaged or requires repairs you can get significant concessions from the seller (bank). Those concessions are often tracked independently by the REO departments, and thus they have greater latitude in that then they do in pricing.

Nice work Bugs.
Pretty marginal, even at 350K. Now, if the identical situation were to come up in the Mount streets area of Clairemont, I’d consider it a reasonable deal.