The Active Leak and the As-Is Instruction
You are appraising a 1978 split-level for a refinance. The engagement letter requires an as-is appraisal with no repairs and no inspections, and states the borrower cannot afford repairs. During inspection you see an active ceiling stain in the lower-level family room, bubbling paint, and a bucket. The owner says a roofer sealed it last month but has no receipt. Similar homes in average condition sell for $385,000 to $405,000; homes with documented roof replacement sell for $410,000 to $425,000. A roofer gives a verbal estimate of $9,000 to $14,000 but no written bid. You have three days to deliver. The client asks you not to mention the leak because it will kill the deal.
1. What scope-of-work decisions must you make before proceeding?
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Scope must be sufficient for the intended use, which is a lender decision about collateral. A known active leak is not a cosmetic detail; it is evidence of a condition that may affect safety, marketability, and value. I would expand research beyond the usual inspection: ask for the roofer's invoice or warranty, photograph the stain and any attic sheathing, and request a professional inspection. If the client refuses, I can still proceed only if I disclose the limitation and use an extraordinary assumption about hidden damage and repair cost. I cannot simply omit the leak because the client asked. I would document the client's instruction, explain why the condition is material, and either deliver with clear disclosure or decline if the uncertainty is too great to produce credible results.
2. Should you use an extraordinary assumption or a hypothetical condition for the unknown repair cost, and why?
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Because the assignment is as-is, I cannot value the property as though the roof were repaired. That would be a hypothetical condition and would require a subject-to value, not an as-is value. The unknown element is the extent of hidden damage and the exact cost to cure. I would use an extraordinary assumption that the visible leak is repairable within the verbal $9,000 to $14,000 range and that no structural damage is present, subject to verification. I would state the assumption prominently and explain its effect. If later evidence showed rotten framing or mold, the value conclusion could change materially. I would not use an assumption merely to avoid an inconvenient fact; I would use it because the assignment can proceed only with a clearly disclosed uncertainty.
3. Draft the core disclosure and value treatment you would use in the report.
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Core disclosure: 'Observed active ceiling stain, bubbling paint, and a bucket in the lower-level family room. Owner reports a recent verbal roofer repair, but no invoice or warranty was provided. No professional inspection was made. The as-is value reflects this condition and an extraordinary assumption that repairs cost $9,000 to $14,000 and that no structural damage exists.' For value, I would not ignore the leak. I would compare the subject with the average-condition range and the documented roof-replacement range, then apply a condition adjustment supported by the cost to cure and market reaction. If the repaired value is about $410,000 and the cure is about $12,000, the as-is indication is roughly $398,000 before considering buyer risk and marketability, which may warrant an additional discount. I would reconcile within the $385,000 to $405,000 range and explain the basis.