REO's as comparables to non-REO

[residentialguy]

We have already seen this episode multiple times starring you and Zwerg where the appraiser must go multiple miles away and back in time so as to not use REO sales next door and only use "normal" sales.

Just as we've seen the episode multiple times, of the Skippy easy street approach that assumes that lack of sales means lack of value, as well.

For the record...again (stated multiple times), I will use REO sales.

 

[DMZwerg]

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"

Scope of work and reporting issue.

FNMA forms have predefined scope of work. If you use the FNMA form 1004 then the value reported on the 1004 must meet the definition of market value on that form. The values on the REO addendum do not.

Odds are it would be best to have an actual form for REOs rather than just a addendum to a form that is not ideal as that way the differences (market value, etc., could all be met at different places and everyone on the same page as to what definition and such each value is developed under.

 

[DMZwerg]

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.

Well, you keep insisting that we are interpreting the word "typical" wrong so what word would you suggest to differentiate between REOs and sales that don't violate close to 6 points in the real estate definition of market value?

We understand that it is the SUBJECT that is subject to that definition and not the comps, but if you are using sales that don't meet the definition then what definition does the resultant fall under?

 

[DMZwerg]

We have already seen this episode multiple times starring you and Zwerg where the appraiser must go multiple miles away and back in time so as to not use REO sales next door and only use "normal" sales.

I have used and included the REO sale next door (or across the street, back to back, etc.). I either adjusted it or gave it little to no weight, but I did include and use it. :icon_mrgreen:


Let us suppose there were no sales whatsoever in the last 12 months ... all properties are automatically worthless then, correct? :new_snipersmilie:
If not then you either have to go back further in time or out further away and adjust accordingly based on what support you can gather.

 

[J Grant]

I can't keep up with every post too much going on ! But a good discussion. RE, I am not going to talk about regular appraisals and whether a colonial appeals to this buyer or whether we go 5 miles away for a lake view, I am assuming we all know how to appraise, the post was about whether to use REO sales, but in my mind, short sales are similar if not a bit trickier, and usually when REO sales are present you have short sales as well.

Regarding the REO addendum, I need to explaiin it further. The price on the sales comparison page is market value. On REO addendum, they are asking for a possible discounted value from the market value on the sales comparision page, re, would there be any discount for the subject to sell in 60-90 days marketing time? If the predominate marketing time is already 60-90 days I usually give no discount, or perhaps a small one such as 2%. If predominate marketing time is 150 or 200 days, I will give a discount , maybe 5-10% depending on the property condition and appeal.

What the bank does with those figures I have no idea. Usually the REO appraisal is done when there is an offer on the property. I think they are looking to see if the offer is close to market value, re acceptable. If they decide to reject the offer, they want to know, if they have to put the house back on the market, what might it sell for in 60-90 days.

 

[J Grant]

violate close to 6 points in the real estate definition of market value?

What do you mean by "Violate"? That is not a word in USPAP either. Violate what six points in the defintion of market value?

Spell out each six points and how an REO house "violates" them, and I will see if I intrepret it differently.

 

[J Grant]

Let us suppose there were no sales whatsoever in the last 12 months ... all properties are automatically worthless then, correct

I don't think no sales in the last 12 months one could automatically say the properties are worthless ( no sales in a subdivsion? no sales where? ) Let's assume a subdivision, no sales in 12 months. First we have to look at listing activity. There are no sales in Cherry Hill subdivision in a year. Have there been homes listed for sale, and if so, what is going on with them? If there are no listings or very few listings, or one listing on the market and it has a pending contract and was on the market 12 days, I'd assume Cherry Hill is such a great place to live that few people sell their homes in a given year ( there are places like that).

But, if no homes sold in Cherry Hill and there are 40 listings, and no contracts, and lots of price reductions, and some have been on the market 300 days, I'd start thinking Cherry Hill was having an appeal problem (like, mabye they are building a sewage treatment plant or prison next door?) I'd want to be talking to realtors at that point, actually, in either case, why are there no sales in Cherry Hill.

The point is, in res appraising, even if the form looks simple, it is not simple, and an appraiser has to look at listing and sales and talk to realtors and all the rest. Same with whether to use REO comps. There is no one size fits all answer ( at least to me there is not)

 

[Mr Rex]

Given that "arms length" sellers are having to compete with REOS and shorts, which is a "undue stimulus", there are no true "arms length" sales in the current market, in some markets.

 

[J Grant]

Given that "arms length" sellers are having to compete with REOS and shorts, which is a "undue stimulus", there are no true "arms length" sales in the current market, in some markets.
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Imo, the whole market is subject to unde stimulus, it stops becoming "undue", and becomes "typical" for the area. And short sales and REO sales are arms length transactions, the only point of contention might be "undue stimulus", and as we are seeing, when it is present in so much of the market is it "undue", any more? The private sellers are in competition with the REO/short sales, so any of them seriously looking to sell in this market becomes subject to the same pressures.

 

[Mr Rex]

I agree, the entire market is subject to "undue stimuli" also called External or Economic Depreciation or Obsolescence.

Is a buyer that buys @ "traditional" pricing really acting in his or her own best interest in the current market, given the principle of substitution?