REO's as comparables to non-REO

[J Grant]

How about this as a thought rule:

If 30% of sales are REOs, one or two of your comps should probably be a REO.
If 60% of sales are REO's, most of your comps should be REOs.
If 30% of sales are shorts, one or two of your comps should probably be Short Sales.
If 60% of sales are REO's and Shorts, most of your comps should be Shorts and REO

Well it would depend on teh subject, and the competition , features etc. If those are the proportions of the comps that end up in competition with subject so be it, but I would not apply a formula like that ( though I understand the thought process behind it).
Re, if we do the apparisal per guidelines , re picking the most similar comps, the issue of whether to use REO or short sales is revealed to the appraiser in the sales most competitive to the subject, a good way to check your value is with pending listings etc, both REO and non REO listings, and check the marketing times of each.

 

[J Grant]

Ok...let go to a stable neighborhood. Traditional sales are predominant. Lender comes to you and wants the most probable price the subject would sell for with the undue stimulus and motivation of a REO. You have 4 similar REO sales selling at $250-275k and 25 traditional sales that sold between $300-350k. What comps would you use (all comps being similar in every other way)?

I have done close to 500 REO appraisals in the past 18 months and lots before that, and I have never, ever had a lender ask me for a value " with the undue stimulus and motivation of an REO ". So I can't answer your question, because that assignment does not exist in the real world. The lenders want market value. If any other appraiser has ever received an assignment from a lender holding an REO asking for liquidation or other value than market value maybe they can answer your question, but I have never in my 19 years of appraising had a lender ask for such a weird value like you are describing ( subject to the undue stimulus and motivation of an REO??) The closest it comes to your question takes place on the REO addendum, where a second value in 60-90 day marketing time is asked for.

 

[J Grant]

Like the father/son, the sale price of the REO may vary because of the buyer seller motivations

No, not like father son. Father son is a special case where the close family relation is expected to affect the sale price so much that it is not considered reliable (some parents give a house to their kids, or sell a 100 k home for 10K)

The price of an REO may vary with buyer/seller motivation, yes, similar to how private owner sale prices vary with buyer/seller motivation.

 

[Elliott]

resguy said, If you want a misleading report, that would be a good rule to follow, imo. (given that everything else was equal with the comps)

So why would it be misleading? What would be less misleading? To use more or less REO's and shorts,
or just not use them at all?

 

[residentialguy]

So I can't answer your question, because that assignment does not exist in the real world.

Sure it does. You don't think lenders would want to know that? That is one of the things that risk management does. They want to know how much it is worth, should they have to sell it as a REO.

Whether or not you've had that asked for you is immaterial. That is the request, as unusual as it may be. What comps would make sense to use? Simple question.

 

[residentialguy]

resguy said, If you want a misleading report, that would be a good rule to follow, imo. (given that everything else was equal with the comps)

So why would it be misleading? What would be less misleading? To use more or less REO's and shorts, or just not use them at all?

Use sales that reflect the value that they are seeking. Why would you use a REO or SS to get the value of a traditional sale when you have traditional sales at hand to tell you that? Now if you need a comp to support an adjustment from something that is lacking in the traditional sale, ie, porch, 3rd stall, bath, etc, then that's a different story. But now you have to address the market reaction to the sale type along with it. You may find that there is no reaction, but you will still need to prove it, at least to CYA.

 

[J Grant]

Elliot, I disagree with his response to you re misleading report.

You don't think lenders would want to know that? That is one of the things that risk management does. They want to know how much it is worth, should they have to sell it as a REO.

What you are saying above makes no sense. Should they have to sell it as an REO? By the time the bank takes back the house from an owner, it is an REO. Unfortunately, sometimes the banks use BPO's to price it for a listing, not appraisals. They often ask for an appraisal when they get a short sale offer, though some banks ask for appraisals at a variety of times in the process. Why and when they ask is their business, I don't work for them, I do REO appraisals for lenders, I am not in their risk management department overhearing their conversations. I have always been asked to provide market value, I have no idea what you are talking about when you are talking about , I have never heard of such as assignment, "what it is worth, should they have to sell it as an REO"

 

[residentialguy]

You don't think lenders would want to know that?

I'm not saying to ignore them. That information should be reflected in your market analysis of the neighborhood and comps.

 

[residentialguy]

Elliot, I disagree with his response to you re misleading report.

You don't think lenders would want to know that? That is one of the things that risk management does. They want to know how much it is worth, should they have to sell it as a REO.

What you are saying above makes no sense. Should they have to sell it as an REO? By the time the bank takes back the house from an owner, it is an REO. Unfortunately, sometimes the banks use BPO's to price it for a listing, not appraisals. They often ask for an appraisal when they get a short sale offer, though some banks ask for appraisals at a variety of times in the process. Why and when they ask is their business, I don't work for them, I do REO appraisals for lenders, I am not in their risk management department overhearing their conversations. I have always been asked to provide market value, I have no idea what you are talking about when you are talking about , I have never heard of such as assignment, "what it is worth, should they have to sell it as an REO"

I can't understand why you're struggling with a hypothetical question, so I answer for you.

ANSWER: You would use REO comps to find out what the most probable price a REO sale would sell for. The estimated market value would probably fall within the REO sale range.

You wouldn't use traditinal sales to find out value of a REO.

POINT: The same goes both ways.

 

[J Grant]

Seriously, I can't answer your question because it is so weird!

You are separating REO and "traditional" sales, the word traditional does not exist in USPAP or any appraisal guidelines so truly, the question is so off base I can't answer it.

When a lender takes back a house, they realize it is an REO, so why would they want to know "what an REO would sell for"? The house they have taken over is now a house they have to sell, so they want to know the market value (in my experience, and the other appraisers I am in contact with doing REO work).

If the lenders are asking realtors for some weird as if it were an REO value on a BPO, that may be something but I don't know that end of the business. ( realtors have no standards they need to adhere to, so yes they may autmatically line up a bunch of REO sales as comps if they see that the subject is an REO). I hate BPO's and don't think they should be used but that is another story.

Going off computer for night, see you all in the AM!