Real Estate Appraisal Forum

appraisersforum.com logo
The Premiere Online Community for Real Estate Appraisers!
 Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
 
 
Go Back   Appraisers Forum > Real Estate Appraisal Forums > Urgent - Help Needed
Register Help Our Rules Calendar Archives Mark Forums Read


Closed Thread
 
Thread Tools
  #1  
Old 10-20-2011, 12:38 PM
C&L's Avatar
C&L C&L is offline
 
Join Date: Sep 2004
State: California
Professional Status: Certified Residential Appraiser
Posts: 76
Default Instant equity by making a house financable - Is there a term for this?

Hello all, I appreciate any help.

An REO was listed on the market that was tenant occupied. It had multiple offers above the 317k list price. An investor was able to purchase it for 317k since it was an all cash purchase. The sellers did not take the higher, financed offers because the sellers felt it would not be able to get financing due to tenants occupying the property and some potential health/safety FHA issues.


Since the purchase about 45 days ago, the investor has moved out the tenants, repaired peeling paint (it was built before 1972), fixed damaged roof tiles and built a safety fence around the swimming pool as required by local ordinance.

Now, the investor is in contract with a FHA buyer at 360k, which is a 43k increase.

I am doing the appraisal and I am attempting to explain the increase in value. I understand the investor has some out of pocket costs (repairs and paying tenants to move), but I think the real increase in value is: making a previously un-financeable home, now FHA financeable

Is there a term or concept out there that helps explain how making a house financeable creates instant equity because you now have a larger pool of potential buyers, higher demand, etc?? Any help is appreciated, thank you in advance.
Sponsored Links

  #2  
Old 10-20-2011, 12:45 PM
JTip's Avatar
JTip JTip is offline
 
Join Date: Oct 2004
Location: Central PA-Altoona-State College
State: Pennsylvania
Professional Status: Certified Residential Appraiser
Posts: 3,734
Default

Quote:
Since the purchase about 45 days ago, the investor has moved out the tenants, repaired peeling paint (it was built before 1972), fixed damaged roof tiles and built a safety fence around the swimming pool as required by local ordinance.

Now, the investor is in contract with a FHA buyer at 360k, which is a 43k increase.
I think there is some mortgage 'flipping' rule that addresses this. Value is value to us, mortgage rules are questions for bankers.

A 10+ point return in less than two months is.....pretty darn good.....
__________________
I are serious appraiser, this is serious thread.
  #3  
Old 10-20-2011, 01:08 PM
Restrain Restrain is offline
 
Join Date: Jan 2002
Location: Denton, Texas
State: Texas
Professional Status: Certified General Appraiser
Posts: 10,388
Default

The value is what the market indicates. Any comments regarding the change of value would be in the prior sales history. Just describe the history of the subject, change of occupancy, repairs, etc. It would be up to the UW to decide whether to proceed, if there is a limitation on flipping, etc. Remember that flipping is, on its face, not illegal and happens quite often. It is illegal flipping (repairs not made, straw buyers, etc) that have given flipping a bad name.
  #4  
Old 10-20-2011, 03:24 PM
C&L's Avatar
C&L C&L is offline
 
Join Date: Sep 2004
State: California
Professional Status: Certified Residential Appraiser
Posts: 76
Default

Thanks for the replies so far. Just to clarify, this is definitely not an fraudulent/illegal flip.

I will go ahead and write the details of the sales history, but the question remains, has anyone heard of a finance/economic concept of 'something' immediately gaining value once it is financeable?

Based on simple supply/demand, by making a house financeable, the demand would increase since you have more potential buyers, thus increased demand typically means a raise in value (or price).
  #5  
Old 10-20-2011, 03:32 PM
residentialguy's Avatar
residentialguy residentialguy is offline
 
Join Date: Mar 2009
State: Minnesota
Professional Status: Certified Residential Appraiser
Posts: 14,168
Default

Quote:
Originally Posted by C&L View Post
I am doing the appraisal and I am attempting to explain the increase in value.
Easy. That was a REO sale, which typically sells below market value. It was also repaired and renters were moved out. As long as your comps support your value of the most probably price it would have in its current updated condition and without undue stimulus, I don't see the problem.
__________________
Due diligence doesn't mean you get all the answers...it means you've done your job!
  #6  
Old 10-20-2011, 04:13 PM
C&L's Avatar
C&L C&L is offline
 
Join Date: Sep 2004
State: California
Professional Status: Certified Residential Appraiser
Posts: 76
Default

Thanks ResidentialGuy....

Comps do support. Maybe I am making this more complicated because of the increase in value in a short amount of time. But as you said, maybe it is just as simple as "repairs made, tenants moved out".
  #7  
Old 10-20-2011, 05:22 PM
residentialguy's Avatar
residentialguy residentialguy is offline
 
Join Date: Mar 2009
State: Minnesota
Professional Status: Certified Residential Appraiser
Posts: 14,168
Default

Quote:
Originally Posted by C&L View Post
Thanks ResidentialGuy....

Comps do support. Maybe I am making this more complicated because of the increase in value in a short amount of time. But as you said, maybe it is just as simple as "repairs made, tenants moved out".
And it is not a REO sale value you're looking for.
__________________
Due diligence doesn't mean you get all the answers...it means you've done your job!
  #8  
Old 10-20-2011, 06:38 PM
Joyce Potts's Avatar
Joyce Potts Joyce Potts is offline
 
Join Date: Feb 2005
Location: Central Florida
State: Florida
Professional Status: Certified Residential Appraiser
Posts: 8,035
Default

Any mortgage flipping rule is the lender's problem.

Take the prior sale, listing, multiple offers and final cash sale into consideration, and of course, disclose all of it, but at the same time try and remove any bias and appraise it based on the most recent sales having the highest degree of locational and physical similarities and see where the chips fall. It's all a part of the puzzle, you just can't always allow one or a few factors to drive your analysis in just one direction.

Flipping has earned a bad reputation, but there circumstances where someone falls into a deal or market conditions change and they flip the property for a fair and well earned profit. And that said, I know of circumstances in my market where the flipping frenzy was nothing more than a few people setting the market and driving up prices.

Take it on a case by case basis.
__________________
If you have something to say,
keep your mouth shut!
  #9  
Old 10-20-2011, 06:39 PM
Joyce Potts's Avatar
Joyce Potts Joyce Potts is offline
 
Join Date: Feb 2005
Location: Central Florida
State: Florida
Professional Status: Certified Residential Appraiser
Posts: 8,035
Default

And don't forget, if the REO or short sale is the HIGHEST SALE, you must remove it and replace it with a 'traditional sale'. <cough and choke>
__________________
If you have something to say,
keep your mouth shut!
  #10  
Old 10-20-2011, 06:56 PM
PropertyEconomics's Avatar
PropertyEconomics PropertyEconomics is offline
 
Join Date: Jun 2007
Location: Central New Mexico
State: New Mexico
Professional Status: Certified General Appraiser
Posts: 18,720
Default

I believe the equity is created by "opportunity" .... and is associated "earned" as a result of the "risk" the investor has taken. I think it could be labled Equity from Opportunity but I certainly havent seen that identified, described or defined in texts.
__________________
Foxtrot, Uniform, Charlie, Kilo Cancer ... In memory of our friend Bill Waite!
Sponsored Links

Closed Thread


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump




Copyright © 2000-, AppraisersForum.com, All Rights Reserved
     Terms of Use  Privacy Policy
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com

Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
Partner Sites:
AppraiserUSA.com - National Appraiser Directory AllDomainsUSA.com - Domain Name Registration
DeadbeatListings.com - Deadbeat ListingsAppraiserSites.com - Web Hosting for the Professional Real Estate Appraiser
Find FHA Appraisers - FHA Appraiser Search Commercial Appraisers - Commercial Appraiser Search
Relocation Appraisal - Find Relocation Appraisers Domain Reseller - Business Opportunity
Home Security Buzz - Home Security Info Radon Testing - Radon Gas Info
My Medicare Forum - Medicare Info Stop Smoking Help - Help Quitting Smoking
CordlessPhoneStore.com - Great Cordless Phones AndroidTabletCity.com - Android Tablet Computers

Follow AppraisersForum.com:          Find us on Facebook            Follow us on Twitter


All times are GMT -5. The time now is 11:12 PM.

SiteMap: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93