Bugs or SD Appraiser

[SD Realtor]

Bugs/SD Appraiser –

Does this smell like fraud to you?

– Listing of a home is 360k in a lower income neighborhood. It is a small 3/1 home. It is priced in line with recently sold comps both in price and in sf, lot size, beds/baths.

– Purchase offer received is 450k and states seller is to receive 360k and 90k shall go to a specific company that will be performing construction to accomodate handicap accessibility to the home.

My question is, how does this home get appraised properly? Does the appraiser get the comps for the home unmodified and then adjust that appraisal after looking at a list of what needs to be done to make the home handicap accessible?

Also note that the RPA did not request a termite clearance, AND waived things like a NHD.

In short I advised my client to walk or shall I say run away from this offer which they did. There is even more to it then this but I was wondering if you guys had done appraisals like this.

I got permission from my client to post this question on the website.

[Bugs]

As I understand the scenario, there is a purchase for the home and the purchase contract includes some work to modify the structure for handicap accessible features.

Basically what appears to be happening is the lender is financing the improvements as well as the purchase. It’s not a common situation but there are lots of lenders who can do type of loan.

Assuming it’s handled legitimately (??) this loan probably isn’t going into a conventional program; more likely one of the community banks or possibly some specialty lender or involving some government grant.

From an appraisal standpoint this type of appraisal problem can be resolved without any sleight of hand. We would have an “As Is” value of the house prior to improvements, and a value “subject to completion” of the improvements as specified. It’s just like a construction loan, wherein the project starts off with a vacant lot and the lender finances all the construction. The lender would fund conrol the costs of construction, doling out portions of it to cover the costs at the various stages of completion.

The only difference in this case is that instead of doing all new construction we’re only talking about remodeling costs. Adding ramps, widening doors, new kitchen and bath cabinets and fixtures, non-twist doorknobs, etc..

[no_such_reality]

Bugs, in which case, wouldn’t the improvement funds be held in escrow pending completion and clearance of inspection?

[Bugs]

The lenders can either choose to disperse up front or through a fund control mechanism wherein the costs are doled out in segments. Considering this is only $90k I would think some lenders would just fund up front, and others might break it down into 2 draws; one at the 50% mark and the other upon final completion.

If it’s fund-controlled what usually happens is the contractor fronts the money for materials and completes portions of the work. When one of those portions is complete the contractor calls the lender for a draw payment. The lender sends out the original appraiser or a construction estimator to inspect the project and verify that the portion of the contract being paid for is complete; when the lender receives that draw inspection report they fund the draw.

A few lenders do so many construction loans they employ a construction estimator or contractor on staff to conduct those inspections – one of my clients has a guy like this on staff. Other lenders subcontract those inspections out to either the original appraiser or contractor.

With that said, there might be a few lenders that would just disperse the money and hope the project would be completed. That’s pretty risky because some of these contractors have been known to quit, go broke or just skip out on the work after receiving payment. The federal banking regulators wouldn’t put up with more than a couple losses arising from such decisions.

[SD Realtor]

Hi Bugs –

Thanks for that…. my thoughts of the process were exactly along the lines of progression that you presented. What really concerned me were other facets not readily presented in my thread, the absence of the buyer asking for an NHD (which we would have to provide regardless) (but they specifically hand wrote in “waived”) and they did the same for the termite. I am also not a contractor but when I asked for a list of renovations they intended to do with the pricing estimates from the builder, the broker got pretty vague. The construction company was Marc Bell construction, may or may not be legit. It just smelled bad. I did indeed present the offer to the seller. His daughter in law is a broker up in L.A. and she didn’t want to have anything to do with it so she advised her father to pass on it. She called me and I told her I felt better that she passed on it as well.

SD Realtor

[(former)FormerSanDiegan]

Not to be paranoid, but maybe they are just out looking for lawsuits. The seller rejected a full-priced offer, primarily because the buyer included construction financing to accomodate renovations to make the property accessible. Are there laws protecting those with disabilities in housing ? How far do these laws reach ?

[SD Realtor]

I don’t think they were FSD… As I said the entire situation was a real scene. Without mentioning the agency representing the buyer (which was NOT any reputable brokerage firm that I had ever heard of) I can say that the many calls I made to this organization within the first day of receiving the offer were not returned. Additionally, the listing did not have the correct firm or listing agents name on the page 7 and 8 of the RPA!!! None of the financing details were specified in page 1 as well. When I finally did reach the broker it was almost comical… he was talking about how they did these sorts of transactions all the time. When I kept pressing about details of the construction to be done, wanting to see an itemized list, as well as details about the appraisal he got very busy and said he would get back to me. Finally when I reached him again the next day to tell him my seller would need to see more details to consider this offer he told me they were withdrawing the offer.

SD Realtor

[sdappraiser]

Straw buyer?

[Bugs]

It almost sounds like they wanted the seller to do a build-to-suit prior to the close of escrow. The more typical way of handling it would usually involve a straightforward “as is” transaction with the seller and a subsequent remodel on the buyer’s dime after the close of escrow.

I know there are a couple of professional ADA trolls out there who are basically extorting the business community with frivolous lawsuits. I hadn’t heard anything about that making its way into the residential markets but you never know. These guys apparently have their pet attorneys and they seem to be quite brazen about pocketing the cash AND forcing the physical improvements on these small office and retail properties. I’ve had several of these small business guys tell of having to spend $5k to make the troll go away + the $5k for improvements to their buildings that never ever get used.

I think that asking the questions was a smart move because of the element of the unknown, but you would want to be a little coy about it. There’s no sense in giving them some comment that can be spun into being a violation of the ADA or the Civil Rights Act.

[Author]

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