Adding sufficient "new" value to a rehab?

Question

Recently passed on a home that needed only light "ginger breading", along with a new A/C unit to bring it to market. While this sounds great at 1st, and might be just the thing for turning a home into a rental, my fear was that we weren't going to be able to do enough to improve the value of the house to appraise to the ARV level that suited the surrounding recent sales. Our holding costs over a 6 month period - buying to selling - would be ~2.5 times the amount to spend on rehab. Is this sound reasoning, or am I missing a great opportunity?

Mark H. · Answer

"puffing" is allowed and accepted by the code of ethics for realtors.  
"fluffing" is a term used in the adult industry - and while its certain some people expect an agent to perform this service in the course of a deal, it isn't a subject that is taught in re school, nor does the term appear anywhere in the code of ethics.

Bill Gulley · Answer

Ethics are a subject that is discussed in greater detail for brokers than agents, since brokers are to keep the agents in line and give guidance, it's the broker's tail on the line as well for the acts of who knows how many agents out there.

Karen Margrave · Answer

You can call it whatever you want, but in the end, it's lying, deception, and fraud, with legal consequences.

Bill Gulley as an agent I remember puffing from my real estate exam years ago. It's a real estate term... you're right.

J Scott · Answer

I regret that I have but one up-vote to give for this post.

Bill Gulley · Answer

I believe you're on the right track, but you should know before you buy if you can bring the subject up in value to the desired comps, if not and you're selling the runt in the litter, healthy and in good shape, just smaller or less expensive, then you should have an idea about your profits and probably a quicker sale. \

While you may allow someone to assume more work was done, stretching the truth is "fluffing" and against the Code of Ethics for Realtors, so you need to take care in what you claim. Lying or intentionally misleading an appraiser is an attempt to influence the appraisal, IMO and is a violation of law.

Marketing is nothing more than legalized deceit, so long as you don't make false claims, IMO. So, I guess if you handed the appraiser your marketing sheet and said this is my marketing, they may look at it and then again, they may not give it much consideration.

Jim S · Answer

I'm kind of liking the link to the adult film industry and I think calling it fluffing is quite fitting. LOL 
Stretching the truth is very prevalent by realtors. From photoshopping the grass color to enhancing the blue skies,  it happens all the time. Even realtors who put comments like "act fast this one won't last long" and it ultimately has a DOM of 120+. And what about the banks that play the highest and best game when you know you are the only bidder. 
I would never lie to an appraiser but it is our job to promote our finished product in the best way we can. Ultimately,  I am here to make the most profit possible from each deal. I guess you could refer to it as salesmanship.

Brad Uricchio · Answer

Thanks to all for your replies - I feel like I did the smart thing. I'm not a realtor, but I am trying to keep everything on the "up & up". I know to some degree it's all a game, and every game has those who do or don't make use of strategy, but I think it's still better to keep it ethical.

Bill Gulley · Answer

Puffing is a greater degree of embelishment and exaggeration, if there is some "adult" slang about it, I have no idea! I probably got it confused with puffing being in the code of ethics and state law here, sorry about that. It's an illegal conduct here set by the RE Commssion which is similar to other states.

Try the first sentence in Article 2. "Realtors shall avoid exaggeration or misleading...facts concerning a property or transaction" :)

I'd say the fact that someone is not a Realtor and not having an RE license then gives license to mislead and deceive anyone is not an argument for any ethical person to make. If you are dealing in an industry and business you should be doing so honestly. I realize that many today, especially the "younger generations" lack integrity and don't really understand that if you conduct business unethically you will only make a fraction of the money that is possible in your career IMO. Seems many think it's all about me, see if I can put it to this other guy, such attitudes have never won over in the long run. There were several I refused to do business with, along with many others when the word got out, they didn't last long.

As to the regulation, I believe I read it on an appraisal site, I don't always recall where I read various statutes but I know it when I read them, I'm pretty sure it said something like "any person attempting to" and I'm positive it didn't say "any banker, lender, Realtor". It should be rather easy to find, but even if I found it, I'm not a techie to link it, sorry.

I don't believe the OP was out of line with the initial question BTW.

Karen Margrave · Answer

After the bank fiasco you can bet an appraiser isn't going to put his tail on the line and be duped into giving a higher appraisal than is justified, and in fact, most appraisers are being extremely conservative, so if you can't show "real" value, walk away.

Also, did you see the post I put on earlier Rehab Cost vs Value? Good rule of thumb.

J Scott · Answer

Doesn't sound like the OP is a Realtor, so that's probably not an issue.

As for a seller trying to influence an appraiser, is that really a law?  I'm pretty sure not.

I believe that it's a federal crime for banks to try to influence appraisals, and I know that in some states (but I don't believe there's a federal law), it's illegal for mortgage brokers, lenders and real estate agents to try to influence appraisers, and I assume it's illegal for appraisers to allow themselves to be influenced.  But I don't think there are any laws anywhere that say a seller can't try to influence an appraisal.

Of course, I could be wrong...but I'd love to see the regulation if it exists somewhere...

Adding sufficient "new" value to a rehab?

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