Why Appraising a Gutted or Incomplete Property Is Not Business as Usual

For real estate investors, buying a property mid-renovation—or one that’s been gutted entirely—can offer tremendous upside. But it also comes with uncertainty, especially when it comes to appraisals and financing. Unlike move-in ready homes, these properties require a different lens—one that peers behind the drywall and sees potential, risk, and value.

Appraisers play a key role in guiding lenders, buyers, and investors on what a property is truly worth in its current state, what it could be worth when finished, and what risks are involved. In this article, we’ll explore exactly how professional appraisers approach these unique situations.

Whether you’re flipping homes, financing a BRRRR project, or purchasing a distressed property, this is your investor’s guide to how value is determined—when the paint isn’t dry and the plumbing isn’t in.

Section 1: What Counts as “Partly Built” or “Gutted”?

Before diving into the appraisal process, it’s important to define what we mean:

• Partly Built Homes: These could be new construction homes still under development, often without final occupancy permits.

• Gutted Homes: Properties where walls, floors, kitchens, bathrooms—or even mechanicals—have been stripped out, leaving the shell or framing.

These homes pose valuation challenges because they aren’t fully usable, and their condition falls well outside the norm of typical comparables.

Section 2: The Three Key Questions an Appraiser Asks

When appraising an in-progress property, professionals like those at Cade Appraisals Inc. consider the following:

1. What is the current “as-is” value of the property in its present condition?

2. What is the “as-completed” value based on market-supported completion standards?

3. How much work—and cost—is required to bring the property from as-is to as-complete?

Each of these questions involves careful judgment, documentation, and often, multiple appraisal techniques.

Section 3: The Appraisal Process – Step by Step

Step 1: Site Inspection and Documentation

The appraiser will thoroughly inspect:

• Structure and framing (Are the walls and load-bearing elements intact?)

• Roof, windows, and doors (Is the home weather-tight?)

• Mechanical systems (Plumbing, HVAC, electrical: roughed in or missing?)

• Interior finishes (Drywall, floors, cabinetry, fixtures)

• Basements and attics (Dry, sealed, and accessible?)

• Permits and approvals (Is the work legal and documented?)

Photos, notes, and a sketch of the current floor plan are standard. If safety is an issue, access may be limited, which is noted in the report.

Step 2: Determining the "As-Is" Value

To estimate the as-is market value, appraisers use:

• Sales of similar distressed/incomplete properties, if available.

• Adjustments based on condition: Large deductions are made for missing kitchens, bathrooms, heating systems, or permits.

• Cost-to-complete estimates: If a property is 50% done, appraisers may deduct 50% of construction cost from the as-complete value.

• Highest and Best Use analysis: Sometimes the as-is value is for land only, if the structure is beyond repair or demolition makes economic sense.

Investor tip: The as-is value may be lower than your purchase price—especially if the home is in poor shape or in a market with few similar comparables.

Step 3: Determining the "As-Completed" Value

This is the value of the home after all renovations or construction are complete, assuming the work is done to typical market standards.

Appraisers will:

• Request detailed renovation plans and a budget or scope of work.

• Use comparable sales of fully renovated or new homes in the area.

• Adjust for square footage, lot size, location, style, and upgrades.

• Often include before-and-after appraisals if required by lenders.

This figure is critical for ARV (After-Repair Value) loans, construction loans, or investment analysis.

Section 4: Key Appraisal Approaches Used

Appraisers use all three valuation methods to inform the process, depending on the situation:

1. Direct Comparison Approach

• Based on recent comparable sales.

• Adjusted for condition, missing elements, and quality.

• Primary method used in residential appraisals.

2. Cost Approach

• Used when the property is under construction or recently built.

• Estimates cost to replace the structure, minus depreciation, plus land value.

• Helps inform both as-is and as-completed values.

3. Income Approach (for multi-unit or BRRRR projects)

• Used for rental properties.

• Projects gross income, expenses, and net operating income (NOI).

• Applies a cap rate to determine value—particularly useful when comparables are scarce.

  
  

Section 5: Financing Considerations – What Lenders Look For

Lenders rely on appraisers to guide financing decisions. They want to know:

• How risky the loan is based on the condition and marketability.

• What the current and future collateral value is in case of default.

• Whether permits are in place and work is being done professionally.

Appraisals may be ordered as:

• As-is only: For hard money or private lenders financing purchase before work.

• As-completed: For refinance or ARV loans.

• Dual-value reports: Lenders may request both to understand risk and recovery potential.

Section 6: Tips for Investors Appraising Gutted or Incomplete Homes

1. Have a clear renovation scope: Include materials, finishes, floor plans, and cost breakdowns.

2. Get comparable sales ready: Suggest recent sales of renovated homes and fixer-uppers in the area.

3. Check zoning and permits: Unpermitted work may result in value deductions or conditional appraisals.

4. Anticipate lender requirements: Many lenders won’t fund gutted homes without an as-completed appraisal.

5. Time your appraisal strategically: If renovations are almost done, wait until major systems are in to maximize value.

Section 7: Real-World Example

Property: A 3-bedroom bungalow in St. Catharines purchased by an investor for $310,000Condition: Fully gutted to studs, no HVAC or kitchen, electrical partially roughed inAppraised as-is value: $250,000 (based on land + salvageable structure)Renovation budget: $120,000Estimated as-completed value: $470,000Outcome: Lender agreed to fund based on ARV with draws at 25%, 50%, 75%, and final inspection. Investor netted $60K profit post-flip.

Know What You’re Working With

Appraising a gutted or partly built home isn’t just about the walls—it’s about the potential, the planning, and the risk. Investors who understand how appraisers view these properties are better prepared to negotiate, secure financing, and realize the true value of their real estate deals.

At Cade Appraisals Inc., we specialize in these complex valuations across Ontario, including Niagara, Hamilton, and surrounding regions. Whether you’re flipping, refinancing, or acquiring a distressed property, we’ll help you see behind the walls—and beyond.

Ready for an expert appraisal on your renovation or investment property?Contact Cade Appraisals Inc. today for fast, professional, and investor-focused appraisal services.