Subject Property Location in Appraisals

Subject Property Actual Location

By Dave Towne

Excerpts: Appraisers, this article was prompted by my ‘coming in contact with several appraisal reports where different regional appraisers report the physical location of the subject property “in” a particular City associated with the postal ZIP Code for that City. Actually, the property was not “in” the City at all. It was in the County.

Don’t say that the subject property is ‘within’ a particular City or Town due to the postal ZIP Code that applies to the street address unless that is accurate. The actual location may be miles away from there.

Starting with the ZIP Code: those are merely lines on a map the US Post Office established, used to plan mail routes, and distribute mail more efficiently. ZIP Code boundaries do not always follow City Limit or County (Parish) boundaries, and in some cases, the boundaries are a long way from the City name associated with the ZIP Code. See Map 1. This shows 5 ZIP Codes in a region. The ‘City’ for 98273 and 98274 has two ZIP Codes associated. Note how wide the area coverage boundaries are for those two ZIP Codes. It’s not shown here, but 98284 extends north into the adjoining County!

To read more, click here

My comments: I have seen this locally. For example, the two cities were very different. Having an address in one city was more valuable than in the other city. The cities shared a few zip codes. When using GPS internet searches such as Google maps, the city boundaries don’t show up or are not reliable. I keep printed maps in my car that include city and county boundaries.

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NOTE: Please scroll down to read the other topics in this long blog post on real estate market decline in listing prices, land issues, unusual homes, mortgage origination stats, etc.

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Ohio House With Jail Cells $275,000

Excerpts: Built in 1972, the prime party house is now on the market for $275,000—and the listing photos have been shared all over the internet.

The home 6467 sq. ft., 4 bedroom and 4 bath home features jail cells just off the kitchen and main living space, and these repurposed cages come with a backstory.

“As legend has it, there was a local bank robber back in the early 1900s by the name of John Dillinger. He had broken out of jail and was robbing banks. It’s believed that these are the actual jail cells that John Dillinger was being held in. The [guy who built the home] got them from the jailhouse and put them into this property,” Stackhouse (the owner) says.

To see many photos click here

Scroll down the page.

My comments: Of course, the price seems very low. to me. I’m used to my local median prices at over $1,000,000! At the bottom of the web page are links to more homes with jails.

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Why Appraisers Don’t Depreciate Land

By Jamie Owen

Excerpt: What’s the difference between a newly constructed home and a hundred-year-old home? Depreciation! When developing an opinion of the market value of a property, what appraisers are really measuring is how much depreciation a property has suffered from, and more specifically how much depreciation the improvements on the land have depreciated.

When measuring depreciation using the age-life method, which residential appraisers often use, the first step is to develop an opinion of the value of the land. Why? Because we measure the depreciation of the improvements that exist upon the land. Not the land itself. Why?

While it’s true that land values change over time, the land is a finite thing. As Mark Twain once said, “Buy land; they’re not making it anymore.”

To read more, click here

My comments: Jamie, as usual, has a different way of explaining appraisal topics! In my area, land sometimes moves or disappears: landslides, groups of homes slipping down steep hillsides where the land is moving, hillside land erosion from ocean waves, etc. You may have other factors in your area. The land is gone or moving, but not depreciating, I guess. Just losing or moving land.>

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New in the July 2022 Issue of Appraisal Today

(Annual E&O/Liability issue)

  • E&O Insurance Update 2022 – Claims, State Boards, Discrimination, etc. By Claudia Gagline, Esq. and Magda Pretorius. Includes important disclaimers for your reports.
  • First Notice of Claim: Some Do’s and Dont’s, by Claudia Gaglione, Esq. Borrower complaints, real estate agents, attorneys, etc.
  • 2022 E&O Insurance – Where to Get Insurance, What to look for in a policy, etc.
  • 2022 E&O Insurance Brokers
  • Risk Management for Real Estate Appraisers and Appraisal Firms, written by Peter Christensen, Esq. – Book Review

To read more about this topic, plus 2+ years of previous issues, subscribe to the paid Appraisal Today.

If this article helped you understand these topics and avoid liability, it is worth the subscription price!

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What’s the difference between the Appraisal Today free weekly email newsletters in this blog and the paid monthly newsletter?

Click here for more info!

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Very Big Log Cabin in the Catskills $2,499,000

Excerpts: Built in 2009, the home is has 8 bedrooms, 6.5 baths, 7,100 sqft, and an 8.87 acre lot.

“Twin Creeks” was built is nestled beyond the stone pillars and arched stone bridge between the two untouched mountainside streams of Cornell and Wittenberg mountains. Many thousands of acres of the NY State forestland surround the home. Two hours from NY City.

To read more and see many photos click here

My comments: Check out the photos. Wow!!

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Ten things to know about price reductions in today’s market

June 28, 2022

By Ryan Lundquist

Excerpts:

1) Nearly 40% of active listings have had a price drop

2) Many sellers are distracted by hot headlines from the past

4) No price range is immune from the slower trend

8) How much of a percentage price drop is happening though?

9) Poised to see more price reductions

10) Buyers have more opportunities

To read more and see more graphs, click here

My comments: This post shows how Ryan explains listing price reductions with text, tables, and graphs. Are they going down in your area? Use some of Ryan’s methods in your market.

Does this mean really big declines in sales prices? No one really knows. Percent declines may depend on factors such as the starter home market vs the higher priced market. In my area, over the past 45 years, I have seen price declines vary from 15% to 80% in nearby cities, with the greatest decline in lower priced homes.

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More Than 40% of Home Sellers Are Dropping Their Prices in Salt Lake City, Boise, Sacramento and Other Pandemic Hot Spots

June 21, 2022

Excerpt: Nearly half (47.8%) of homes for sale in Provo, UT — located about 45 miles away from Salt Lake City—had a price drop in May, the highest share of the 108 metropolitan divisions in this analysis. Tacoma, WA, had about the same share of price cuts, at 47.7%. Next come Denver (46.9%), Salt Lake City (45.8%) and Sacramento (44.3%). Boise, ID (44.2%), Ogden, UT (42.6%), Portland, OR (42%), Indianapolis, IN (41.9%) and Philadelphia (41.2%) round out the top 10.

Provo, Boise, Salt Lake City, Sacramento and Ogden were also the top five metros with the biggest increase in the share of listings with price drops from a year earlier. Roughly 12% of listings in Provo and Boise had a price drop in May 2021, and it was around 20% in Salt Lake City, Sacramento and Ogden.

All in all, about half of the metros in this analysis saw more than 25% of home sellers drop their asking price in May. More than 10% of home sellers dropped their price in all 108 metros, driving the national share of price drops to a record high.

To read more, click here

My comments: See how your market is doing. The table at the bottom of the web page compares the number of price drops in May 2021 and 2022 in different areas. Also included is the median sales price in May 2022 and the percent drop from 2020 to 2022. Sort by location (on the left) to find if your market is listed.

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HOW TO USE THE NUMBERS BELOW. Appraisals are ordered after the loan application. These numbers tell you the future for the next few weeks. For more information on how they are compiled, go to www.mbaa.org

Note: I publish a graph of this data every month in my paid monthly newsletter, Appraisal Today. For more information or get a FREE sample issue go to https://www.appraisaltoday.com/products.htm or send an email to info@appraisaltoday.com . Or call 800-839-0227, MTW 7AM to noon, Pacific time.

My comments: Rates are going up. Some appraisers are very busy and others have little work. Varies widely around the country.

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The graph below is from the July 2022 issue of Appraisal Today.

This graph has been in every issue since the mid-1990s. 

What was your business like in 2018?

Mortgage applications increased 0.7 percent from one week earlier

Mortgage applications increased 0.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 24, 2022. This week’s results include an adjustment for the observance of the Juneteenth holiday.

The Market Composite Index, a measure of mortgage loan application volume, increased 0.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 20 percent compared with the previous week. The Refinance Index increased 2 percent from the previous week and was 80 percent lower than the same week one year ago. The seasonally adjusted Purchase Index increased 0.1 percent from one week earlier. The unadjusted Purchase Index decreased 21 percent compared with the previous week and was 24 percent lower than the same week one year ago.

“Mortgage rates continue to experience large swings. After increasing 65 basis points during the past three weeks, the 30-year fixed rate declined 14 basis points last week to 5.84 percent. Rates are still significantly higher than they were a year ago, when the 30-year fixed rate was at 3.2 percent,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The decline in mortgage rates led to a slight increase in refinancing, driven by an uptick in conventional loans. However, refinances are still 80 percent lower than a year ago and over 60 percent below the historical average.”

Added Kan, “Overall purchase activity has weakened in recent months due to the quick jump in mortgage rates, high home prices, and growing economic uncertainty. Purchase applications were essentially flat last week but were supported by a 6 percent increase in government loan applications. The average purchase loan amount declined to $413,500, which highlights an ongoing downward trend seen since it hit a record $460,000 in March 2022.”

The refinance share of mortgage activity increased to 30.3 percent of total applications from 29.7 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 10.1 percent of total applications.

The FHA share of total applications remained unchanged at 12.0 percent from the week prior. The VA share of total applications increased to 11.2 percent from 10.7 percent the week prior. The USDA share of total applications increased to 0.6 percent from 0.5 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 5.84 percent from 5.98 percent, with points decreasing to 0.64 from 0.77 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) decreased to 5.42 percent from 5.49 percent, with points decreasing to 0.28 from 0.45 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA remained at 5.62 percent, with points decreasing to 1.15 from 1.18 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.06 percent from 5.05 percent, with points decreasing to 0.72 from 0.86 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 5/1 ARMs decreased to 4.64 percent from 4.78 percent, with points decreasing to 0.72 from 0.84 (including the origination fee) for 80 percent LTV loans. The effective rate decreased from last week.

The survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100.

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Ann O’Rourke, MAI, SRA, MBA
Appraiser and Publisher Appraisal Today
1826 Clement Ave. Suite 203 Alameda, CA 94501
Phone 510-865-8041

Residential Appraisals and Airbnb Income?

Residential Appraisals and Airbnb Income?

By Julie Friess, SRA, AI-RRS, MA

Don’t get caught like a deer in the headlights! State appraisal boards ARE disciplining appraisers across the country for improperly using the business income (Short term Rental – STR) from Airbnbs on the residential 1007 Fannie Mae form.

Lenders and AMCs want residential appraisers to value these properties as both the real estate and the business values of these properties – Wrong!!

 

Some of the topics:

• USPAP issues

• GRM is an Income Approach that applies to homes with long long-term tenants, not homes with many Short Term Rentals.

• Functional Obsolescence

• External Obsolescence

• Covid-19 Pandemic and Airbnb’s

The photo below has an exterior entrance to a bedroom, typical for an Airbnb remodeling.

To read more, click here

My comments: This mainly applies to cities where many homes are being converted to Airbnbs, including exterior doors for bedrooms (see foto below) and expanding the number of bedrooms. In popular vacation areas, such as Sedona, AZ, where Julie lives, investors purchase homes and do extensive remodels to turn them into Airbnbs with Airbnb management companies handling everything for them (clean up, new furnishing, and renting).

Julie does not include short-term rental income (STR) in her appraisals of homes with Airbnbs. I posted her article on my website so that everyone can read it. I have a few of my comments, of course!! I’m a commercial appraiser and know how hotels and Bed and Breakfasts are appraised. The appraisals include separate values for real estate, fixtures, and Going Concern (business income and expenses).

Julie speaks about this topic regularly on our weekly Clubhouse meetup, Real Estate Appraisal Questions, every Thursday at 2 PM Pacific Time (audio-only social media). All the sessions are recorded. The May 12, 2022 session was “Residential 1004/1007 Form Appraising & AirBnB Income”.

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Tips on appraising new construction homes

6 Tips for Appraising New Construction Homes

Excerpts: New construction is treated a little differently by lenders, FHA, and the GSEs. When appraising new construction homes, you must take into consideration certain features and attributes that don’t necessarily apply to re-sales. It requires more work, so you want to be sure that you are charging for your effort. However, perhaps more than that, you want to be sure you’re following the proper protocol. Stick to these best practices to ensure you cover all your bases.

3. Talk to multiple local builders You can gain valuable information from builders—as long as you talk to them now to evaluate current costs and value. Some of the best construction cost data is compiled by you as you complete new construction appraisal assignments. When appraising new proposed construction, the prior data can be reviewed for those construction projects that are most similar to the subject property in quality, size, and features and be used as cost data to support cost estimates for the current appraisal. As the cost of construction materials generally continue to spiral upwards, it may be necessary to adjust for time, depending on how old the cost data is.

To read more tips, click here

My comments: Well written and worth reading. New home construction appraisals can be tricky. I quit doing them a while ago – too many various hassles, but many appraisers like doing them. There are few new homes built in my area, except stacked condos. Land is too expensive.

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Borrower Keeps Calling Appraiser

Borrower Keeps Calling Appraiser

Appraisal Business Tips 

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Appraisers – The Past and The Future

Appraisers – The Past and The Future

The Path that Brought Us Here

by Richard Hagar, SRA

Excerpts: A wise man by the name of Jim Irish, former chief appraiser for the Federal Reserve Bank out of Topeka, Kansas, once told me something very profound: “The government is rarely proactive but always reactive.” Translation: laws, rules, and guidelines are usually developed after a problem smacks us upside the head. Since hearing this, I have found that it also applies to large enterprises.

Appraisers continued to tell lenders that they drove by each of the comparables used in the report. Years later, when lenders, Fannie Mae, Freddie Mac, FHA, and the VA spot-checked reports, they found out that the condition or location of many comparables didn’t match what was reported. So, the reactive response was to require the appraiser to affirm, under penalty of perjury (which stands to this day), and provide original photographs of each comparable.

Failure to inspect triggered client engagement letters stating the absolute requirement to personally inspect each of the comparables, provide original photographs, and create a system that inspects the photographs and can tell when a photograph is used twice or sourced from the MLS or county—clients know who’s lying to them and fees are lower because of it.

To read more, click here

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Prepare for Change

by Richard Hagar, SRA

Excerpts: In my career, I’ve been through four major changes in the market and our business, so what’s about to happen isn’t my first rodeo. I’m going to point out some things that will make a few people angry. However, I’m trying to help by pointing out how you can become better and profit from the change.

Waivers

Both Fannie Mae and Freddie Mac allow “appraisal waivers” (loans where no appraisal is required), and in the past, waivers were limited to fewer than 5% of the loans they purchased from lenders. However, their waivers have increased to 48% of their loan purchases over the past year. Imagine that 48% of the loans no longer require an inspection or appraisal.

Prior to 2022, Fannie Mae’s UAD system reviewed approximately 20,000 appraisals a day produced by approximately 40,000 appraisers. This indicates that appraisers were providing one appraisal every other day. Now, consider that waivers reduce the rate to an appraisal once every 4 days. Ouch.

To read more, click here

My comments: I have known Richard Hagar for a long time. He can sometimes be negative or even harsh but has good ideas

The future of residential appraising(Opens in a new browser tab)

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Fannie’s New Desktop Appraisal FAQs

Fannie’s New Desktop FAQs

Timeline and 19 FAQs From an email received 3-8-22
“Desktop appraisals will be offered in Desktop Underwriter® (DU®) for eligible transactions starting March 19. Are you ready?
We’ve updated the About desktop appraisals fact sheet with an expanded frequently asked questions section.
Thanks to all the appraisers, AMCs, and lenders who submitted questions, and please continue to Contact us with your appraisal related comments and questions.”
To read the FAQs, click here
My comment: Reading the original Fannie document is good, such as a timeline list, additional verifications, inspections, CU, etc.
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McKissock has an excellent blog post answering many practical questions, including some in the Fannie FAQs and many other questions.
Topics include:
  • What data sources are used for identifying the subject’s relevant characteristics?
  • Are there any state restrictions?
  • Must I be competent in the subject’s market area?
  • Are extraordinary assumptions allowed?
  • Does the limited scope of work mitigate my liability?
  • What is the difference between a sketch and a floor plan?
  • How do I get a floor plan?
  • Does the floor plan need to be verified?
  • Does the property need to be measured per ANSI measurement standards per Fannie Mae’s requirements?
To read more, click here
My comment: Read both the Fannie FAQs and McKissock blog post. How often will desktops be used? It will take a while before they may be widely adopted. See last week’s newsletter. When are we going to get some ANSI FAQs????

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Neighborhood Boundaries for Appraisals

Gentrification, neighborhood boundaries, and bias

By Ryan Lundquist 

Excerpts: Photo used with permission (thanks, Vicky).

Sometimes, crossing the street can make all the difference for value. In short, if we don’t understand where a neighborhood starts and ends, we might choose the wrong comps.

Q&A #3 How do we know neighborhood boundaries?

Okay, this is a big question, and it could easily be a dissertation. For starters, let’s consider what Fannie Mae says about neighborhoods:

Fannie Mae: “The appraiser should provide an outline of the neighborhood boundaries, which should be clearly delineated using ‘North,’ ‘South’, ‘East,’ and ‘West’. These boundaries may include but are not limited to streets, legally recognized neighborhood boundaries, waterways, or other natural boundaries that define the separation of one neighborhood from another. Appraisers should not reference a map or other addendum as the only example of the neighborhood boundaries.”

Other thoughts (mine): I think sometimes we focus only on major streets, but let’s also consider school boundaries and even how neighborhood associations or city websites define areas. But also, where would residents themselves draw the lines? And where would buyers be hunting for a home before shopping somewhere else? All these things could be clues.

To read more and see lots of maps and graphs, click here

My comments: Excellent analysis of specific neighborhood boundaries with maps and graphs, of course. Worth reading. The Jan. and Feb issues of the monthly Appraisal Today has this article: Does my neighborhood really need to be analyzed? Parts I II By Tim Andersen, MAI. The best neighborhood explanations I have ever read!!

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Desktop appraisals okay for some Fannie Loans March 2022

Desktop appraisals okay for some Fannie Loans March 2022

Fannie announcement – About Desktop Appraisals

Beginning in March 2022, desktop appraisals will be an option for some loan transactions. This fact sheet provides high-level information on Fannie Mae’s requirements for desktop appraisals and answers some frequently asked questions. We’ll be adding information to the fact sheet, such as additional FAQs as needed.

Excerpts:

  • Use Form 1004 Desktop
  • Must include floor plan with interior walls.
  • The appraiser must have sufficient information to develop a credible report.

To read the fact sheet, click here

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Desktop Appraisal to Become the New Norm

by Isaac Peck, Editor, WorkingRe

Note: This article was written before the Fannie announcement above. 

Excerpts: A number of questions remain regarding how the GSEs will establish the eligibility criteria for what types of loans, transactions, and loan-to-value (LTV) ratios will qualify for these desktop valuations. For example, Thompson’s comments that such a move will provide relief on rural appraisals runs contrary to most conventional appraisal experience in the industry where appraisal waivers, hybrid appraisals, and other “alternative” valuation products have primarily been used in cookie-cutter, tract home neighborhoods where model-match comps are more readily available.

In fact, over the years many senior executives at the GSEs and at major lending institutions have acknowledged the need for traditional appraisals on rural properties—which are much more likely to have unique features and require more complex analysis.

There is also the question of whether the introduction of desktop appraisals will potentially lead to a broader range of alternative appraisal products into the mix. Given that some senior executives at Fannie Mae were predicting that hybrid appraisals would become mainstream by 2022, it is actually a little surprising that desktop appraisal assignments are the first alternative product to get a permanent place on the GSE’s valuation roster. Appraisers will just have to wait to see what the future holds!

To read more, click here

My comment: Interesting and worth reading about the background of Fannie’s change

Appraisal Completion Certifications – be careful

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How to Respond to a Reconsideration of Value for Appraisers

How to Respond to a Reconsideration of Value (ROV) Request

By McKissock
Excerpts: While the ROV process is an appeal process, it is not to be used for changing the value or altering other assignment results simply because someone is dissatisfied with the outcome. Similar to performing an appraisal assignment, your role as an appraiser is to respond impartially, objectively, and without bias to an ROV request.
When you receive a reconsideration of value request, there are proven ways to handle these requests, adhere to USPAP and applicable regulatory requirements, and preserve a rock-solid relationship with your client. Best practice is to respond in a professional manner, remain positive, respond accurately and timely, and always operate ethically.
Twelve tips for responding to an ROV request. Here are the first five:
1. Confidentiality
2. Pause before responding
3. Meet deadlines, if attainable
4. Take the ROV seriously
5. Start with a positive
To read about all the tips, click here
My comment: Comprehensive with good tips. Well written. Read this if you do ROVs.
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2-16-17 Newz .Land surveys in 1784 .Common appraisal errors

The First Appraisal – About 3,200 Years Ago

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Appraising Fixer-Uppers

What About Those Fixer-Uppers?

Insights from a Seasoned Appraiser
By Steven Vehmeier
Excerpt: We’re all familiar with the term “fixer-upper.” For many different reasons, properties can come on the market in less-than-par condition. The degree and cost to cure become an issue to buyers and sellers, and a challenge for appraisers. At some point, it’s no longer “normal market value minus cost to cure equals as-is value.”
The terms “entrepreneurial incentidddve” and “entrepreneurial profit” are typically discussed in terms of investment property, but the principles involved can also be applied to the many fixer-uppers—whether the buyer is a “purely investor type” or an “owner-occupied investor type.” Maybe a couple of new terms should be discussed: “sweat equity incentive” and “sweat equity profit.”
To read more, click here
My comments: Most of my appraisals are for estates (date of death). I have never appraised a home that was ready for sale when the person died: staged, new paint and floor coverings, yards cleaned up, etc. I very seldom have any repair estimates or structural pest control or home inspection report.
I always assume the home is empty of furniture and “broom clean,” which I learned doing lots of REOs in the past. If a home is cluttered with personal stuff, the price will be lower. But, it can be fixed easily and inexpensively. If it is a mess, I tell the executor to call me when it is cleaned out so I can see what the walls, floors, kitchen countertops, etc. look like.  If I can’t see, I disclose this in the appraisal and do my best to figure out a condition estimate.
Very few MLS listings here are not fixed up for sale. I look for “fixer”, “contractor”, “as is”, “handyman”, etc. in the description.

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