Feasibility Analysis is a product that all 203k consultant’s must offer.
An excellent tool for investors and others who are wanting to know how much to offer on a property. We were asked to do a Feasibility Analysis on a home in Point Richmond, CA. It was a very old home that hadn’t seen any paint in well over twenty years. The asking price was about $200,000. The home needed extensive work and after the work was completed the home was only worth about $200,000. It was clear the seller wasn’t being realistic and the client really wanted the home. I was called in to determine the amount of work needed to bring this home to the HUD MPS (Minimum Property Standards).
Once the inspection was completed and a number identified we came up with a value of $50,000 for the necessary work. The feasibility analysis includes taking the “after improved” value, less the cost of construction and fees, to arrive at an “as is” value. In this case $200,000 – $50,000 or an “as is” value of $150,000. This would be the absolute most the client should pay for this home. The seller would be getting all the money the home was worth today in it’s current condition. This is a win-win situation and both parties were able to get an acceptable and fair price for all concerned.
I used to work with non-profit groups a lot and they quite often would make offers on homes in their neighborhood that needed work and weren’t necessarily for sale. They wanted to be fair but also wanted to clean up the neighborhood around their church. It also was a win-win situation. These are only a couple of examples of where or when a “Feasibility Analysis” might be used. In most cases they aren’t used. The borrower or client would already know they are in the right price range. If at any time the consultant feels the deal is upside down they should recommend going back to the seller for a price reduction.