the REO concept in general,
Are REO values in the future similar to a prospective appraisal?
I'm struggling with the market time versus market exposure dichotomy;
Those are some very relevant things to struggle over and I'm not sure I know enough to answer them or even provide a good opinion. Maybe Web, Wiley and Hicks can help out.
The REO concept has become form driven. The REO assignment's purpose is to extract information from the appraiser about the subject property and the past, current and future market conditions so the client can make a semi-informed decision as to the disposition of property on their hands.
I think it's more like a consulting assignment but the form format doesn't go far enough either because those that dictate the format (by designing the form or requiring its use) don't know the right questions or intentionally not wanting something more complicated, time consuming and costly. But the liability to the appraiser is still the same or almost the same as if they had been engaged in a consulting assignment.
What the form doesn't make clear is that the client is really asking: "What should we do with this property?" as opposed to "What's this property worth as is assuming regular exposure, as repaired assuming regular exposure, as is at a forced, client mandated exposure, and as repair at a forced, client mandted expsoure. The form causes serial confusion by mixing exposure time and marketing time into the term "market exposure."
The confusion is compounded by including only one definition of value (market value) which is based on reasonable exposure (not to mention reasonable effort). As soon as we start forming opinions based on non-market exposure we're talking about different types of value (such as liquidation value.) If the exposure time is reduced too much one has to start considering the question whether or not it is enough time to execute an orderly marketing plan. This is another type of value.
The other problems I see with the "REO concept" is the timing in the "as repaired" scenarios under both exposure time parameters. The value conclusion is based on the date of value (today) but if repairs are to be made before the marketing time clock starts ticking then a prospective valuation is likely to have occurred. And who discounts the prospective sale price back to the current date of value?
Just think of the $40,000 in repairs the OP's property requires. If it takes 60 days to complete those repairs, or more likely 90 days, then the clock on the projected time to sell the property may not start until the market is already less than the actual cost of the repairs let alone the profit estimated on those repairs. The property may chase the market down for another six months while the client tries to recoup their additional investment.
