Appraising a Forclosure Sale

[Ted Markow]

I know maybe I have led a sheltered appraisal career -- or not! Today I cgot a call from one of my better clients and he asked me about appraising a sale of a bank owned property. My gut reaction was ---- yeahhhhhh. Then I realized I had done a lot of diferent appraisals but this would be the first, and I am sure not the last, purchase of a bank owned property. My question, are there any special considerations I need to be aware of? Those of you that have done them before have any heads up on what to look for? What can I expect from the Bank?

I thought it interesting that when a bank is the lender, you jump thorugh hoops to make sure everything is just right. When the tide is turned and they are the seller of a property. Here it is, as is, take it or leave it and oh by the way if you don't take it you loose that 5K you put down as a deposit. Be interesting to see how the lending bank feels about those conditions when it is their money.

Thanks for any advice or opinions

 

[Blueprint]

You are appraising what is commonly known as an REO (aka real estate owned). First thing you need to look for are other REO sales in the subject's PMA. Similar REO's should be your primary consideration as they typically sell below market value based on a slew of different considerations. They are what the typical buyer is looking for in this market. They are generally going to be the best value indicators for your market assuming there are some.

Take your time on this and read more detailed replies from more seasoned appraisers on this forum before you jump in. I have my mentor to help me work on these and maybe you should consider getting some face to face input when doing this.

Also, check your spelling skills before you send that REO appraisal to the client!!!

 

[Rufus]

Basically all you need to do is state the truth. They won't hassle you over this. Make note of any required repairs needed for habitability and deduct same in your sales comparison and in that adjustment account for inverstor incentive. If any deficientcies are noted, provide a cost to cure, and again, add in the inverstor incentive for those items that must be corrected and state that your adjustment includes that.

 

[bill lewis]

Also check with your client if they will require having the power on during the inspection. Most REO's will not have the power on and many clients want you to check to see if the lights will work. For me it's about half want the power on and the other half don't care. Also as the previous person stated tell the truth about damages and repairs needed, many of the REO's can be in very poor condition.

 

[tjcou812]

Most banks do not want you to use REO's as comparable sales. But in todays market you may have few choices and need to use them. Each bank has procedures so make sure yoe get them and understand them or it will come back to haunt you in the end.

 

[Ted Markow]

Thank you for your replies!
Tjcou812 I was thinking along those same lines. It would seem to me that the bank would want to know what the property would be worth on the open market more than what other banks are getting rid of properties at. My other thought is they might want to know, if they didn't already know, what the REOs were actually selling for. Maybe a mix of both would be the answer.

 

[Greg Bell]

Don't forget the REO addendum with cost to cure and 3 listings.

 

[Vivian Bachner]

Are you estimating market value, liquidation value, 90 day value?
Is there an abundance of REO properties for sale in the market area? If not, I would be careful about using REO's in determining market value because they are probably not arms length transactions. On the other hand, are REO properties so prevalent that they ARE the market? In that case, you may want to use them.

 

[Greg Bell]

some exceptions..HUD

10.05
Appraiser must utilize REO comparables as long as they meet the following requirements:
in the subject neighborhood or reasonable proximity
comparable property subject to reasonable adjustment
sold with willing buyer and seller
exposed to market for a reasonable period
NOTE: It is not the intent of HUD for only REO comparables to be utilized.* ONLY use REO comparables if they meet ALL of the above criteria. If comparables such as these are not available, regular market comparables are to be used.* HUD 4150.2 Appendix A A.1.1 B. identifies that the appraiser must utilize REO comparables however, please note that this section does NOT specify that ALL comparables must by REO.* In an effort to ensure a fair market value, if appraiser utilizes 2 or more REO comparables, please include 1 additional regular market comparable for each REO comparable utilized and ensure sufficient weight is employed.

 

[jay trotta]

Evan S; "You are appraising what is commonly known as an REO (aka real estate owned). First thing you need to look for are other REO sales"

Absolutely Incorrect - the First thing You need to do, "Visually Inspect" the subject !!

Ya'll are in a New Market, for you folks who have bean flying by the seat of your pants, turn em around so the fly is in the front......ROFL