What is determined in a 203(K) feasibility analysis report?
A number of important and essential details regarding a property in need of repair work is provided in a 203k consultant’s feasibility report. The scope and the extent of the rehabilitation is clearly documented in the report along with the cost of repairs. If a property to be purchased is need of fixing up, then it is extremely prudent to have the report in hand prior to submitting a formal offer to purchase. An appraiser will also need to be consulted to see if the repairs justify the after completion value. In cases where the value doesn’t get a substantial bump despite the repairs, it would be better to consider other properties than the one currently being considered by the buyer. The fee amount to perform an initial assessment is quite reasonable and the amounts are established according to the HUD 203k consultant fee schedule.
For Home Buyers
For home buyers looking for financing through a 203k mortgage loan program, a feasibility analysis serves a specific purpose; it helps them make a quick decision regarding the cost involved in renovating a single-family or multi-family residential property to meet the HUD minimum property standards. Know this info can give clarity to the buyer about the offer price. A HUD 203k consultant can conduct a thorough feasibility analysis upon visiting the property for a fee of about $350.
A feasibility analysis report can be used as the basis to know the exact amount needed for necessary repairs to be performed prior to submitting a purchase offer to the seller. A seller may also be more willing to negotiate and adjust their sales price according to the findings from a 203k consultant feasibility report. Most sellers will not be willing to pay for any cosmetic upgrades beyond the amount needed to satisfy the minimum property standards set by HUD.
Knowing about the tasks and the scope of the needed work in renovating a residential property can help a buyer proactively seek competitive bids from contractors to complete the repair work. A consultant who performed the initial analysis may also be willing to assist the buyer in evaluating the merit of the offers submitted by renovation contractors.
A buyer’s agent can provide the information regarding the selling price of home comparable to the one the buyer is interested in considering for purchase. This market price can be adjusted for the cost of the repair work stipulated in the feasibility report to arrive at a reasonable purchase offer amount.
Sellers should also consider ordering a feasibility study from a reputed 203k consultant to determine the most amount they can sell their property for. Being well aware of upgrades and the essential work needed on a property to increase its “after improved” value can become invaluable to the seller, especially when they are approached by buyers looking to seek financing through the FHA 203k mortgage loan program. The guidelines for 203K program allow the purchase price to be as high as 110% of the ARV(After Repair Value).
Realtors who specialize in rehab properties can also benefit a great deal with the help of a proper feasibility analysis report before marketing their listing. A buyer will be more willing to consider purchasing a rehab property when they are well aware of the needed repairs right at the beginning. The report will also carry more weight if it were to come from a home inspector on the HUD roster than from others. An agent can also tie up with a lender specializing in 203k financing to streamline all the necessary aspects involved in residential rehab property purchase for the owner-occupant buyers interested in buying them.
For REO Agents
Bank REO listing agents have found a great deal of success marketing properties when armed with a thorough feasibility report from a FHA 203k consultant. In addition to the benefits outlined above for the various entities involved in the purchase and sale of a rehab property, there are several other compelling sensible reasons to consider a feasibility analysis. The need for another home inspection that may cost an additional $400 can be easily avoided. If a buyer who may be considering 203k funding is found, the consultant can then do a full work write-up to account for any additional upgrades and changes sought by the buyer.
Don’t Go with Free
Quite often, one may consider just calling up a contractor and getting a free estimate regarding the repair work. This may be a reasonable option if the contractor is known to be trustworthy and has worked with you in the past. If that doesn’t happen to be case, do not opt for this. You will usually get what you pay for and since you are getting it for free, it may not be worth all that much.
As the contractors are motivated to earn your business, they may initially present a proposal with a lower cost estimate than the real amount necessary to finish the work. The real cost and addition repair work may be revealed to you after you have already come to an agreement and the contractor has already begun work. This kind of behavior is widely prevalent and the only way to avoid falling into this common trap is to seek an independent and honest feasibility analysis report from a professional HUD approved 203k consultant in your area.
Los Angeles, CA
Fred Sweezer Sr.
Certified Home Inspector
Certified HUD 203K Consultant S0712
FHA Compliance Inspector T477