Disposition Value Form

[George Hatch]

I generally don't make physical condition adjustments on more than 1 line.

 

[residentialguy]

And your point is? As is, as of the day, why would you not consider other REOs as the competition?

Sure I would consider it. It's just not on the same level as a traditional owner occupied. They aren't apples to apples and motive is vague at best and can't be verified.

Does the request for market value suddenly change what your subject is, an REO, into some imaginary thing it is not?

However, they often don't know there is a difference of what a REO might sell for or that MV does not reflect the same conditions of sale. That's why it needs to be clarified. OP's case is a classic example.

For MV purpose, REO's should be considered for comps if the typically motivated buyer for subject would consider them, NOT because the subject is "an REO".

If you want to analyze impact of subject being REO owned apart from the market value opinion, do so, but including REO comps for the sole reason the subject is an REO is not in line with the MV purpose...in fact it is because appraisers were doing that that now some lender clients ask appraisers to consider NOT using REO sales on these MV assignments. (or only using them with explanation/analysis) Indeed, sometimes the best comps are REO properties but they have to be on the grid for the right reasons.

I consider them. I consider all market data. I use the best and most reliable indicators of value. If I have 6 non-distressed owner-occupied sales that are identical and 2 of them can't be verified, as required...guess which 2 comps I'm cutting out.

 

[Meandering]

Res, where did you go?

I'd like your thinking on this.

with all of the negative things that are attached with REOs.

The subject is an REO. Why would it not also have "negative things attached" to it, that would make "the most similar comps" those sales that also had "negative things attached"?

Lets clarify this, and then we can move on to whether or not the market is segmented between OO and REO sales and listings.

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[Meandering]

Res, where did you go?

I'd like your thinking on this.

with all of the negative things that are attached with REOs.

The subject is an REO. Why would it not also have "negative things attached" to it, that would make "the most similar comps" those sales that also had "negative things attached"?

Lets clarify this, and then we can move on to whether or not the market is segmented between OO and REO sales and listings.

Because most people pay the same for a property that is occupied, staged, with chocolate chip cookies fresh out of the oven as they would pay for a cold, dark, vacant house with missing appliances and ceiling fans, scuffed up walls, ragged carpet, a broken toilet, and dead flowers...

I don't know about the REOs by you, but here we have PLENTY that were built 2006-2009 and have nothing wrong with them, and a lot of them with vacuum cleaner marks in the carpet pile, nicely laid out at right angles. Yes we also have mold infested ones. But when making a choice for comparables, similar condition, age and size are the criteria.
Also,
There is nothing that prevents agents from holding open houses in REOs, with the exception of commission rates being too low for many to bother with that effort. However, there are some agents that do stage not just REOs but short sales also.

If agents here only wanted to deal with OO sales and listings, well, we'd have many fewer agents for sure.

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[residentialguy]

Res, where did you go?

I'd like your thinking on this.

The subject is an REO. Why would it not also have "negative things attached" to it, that would make "the most similar comps" those sales that also had "negative things attached"?

Lets clarify this, and then we can move on to whether or not the market is segmented between OO and REO sales and listings.
.

I've already listed the limited rights of REOs in post 30.

REOs have a reputation of being "problem homes". Buying a bank-owned house can be an enormously frustrating experience, paperwork can be a nightmare, marked by un-returned phone calls, unforeseen tax bills, unexpected repair jobs, undisclosed title disputes, liens and legal obstacles.

Foreclosed houses are typically sold as is and have often been abandoned for months or years. An REO title is transferred by limited warranty or delivery deed or, if clouded, by quit claim deed.

No seller disclosure. Unanticipated repairs can cost 1000s or even tens of 1000s of dollars, and the buyer typically will have no recourse to the bank. The buyer is typically required to conduct and pay for all inspections and often required to pay for the inspections in advance... and will not be reimbursed if the sale does not go through. When damage is found, it is the sole responsibility of the buyer to pay for any repairs and renovations. With no one living in the home, the electricity & water are probably off. An inspector assess the condition of a home's plumbing, electrical wiring, heating-and-cooling system or major appliances if the water, gas and/or electricity has been shut off. I've personally seen ceilings rain when the water is turned on. When the place is locked up with no air circulating for months, that can cause the entire home to smell. REO buyers have to hire a professional to conduct a visual inspection of the home and prepare a report on its condition, (yes, something everyone should do) but not even a well-qualified and thorough home inspector can see inside walls where that mold and a slew of problems could be present.

It is not uncommon for the home to run into a series of legal complications, including judgments against the previous property owners for various zoning and housing code violations and botched paperwork and foreclosures not done properly, killing the deal right before closing resulting in months of negotiations, offers, counteroffers, inspections, contracts, addenda and extensions went down the drain.

The previous owners may have made changes to the home without getting the proper permits or hiring good labor in order to save money and the new owners now have problems with city officials.

There are often time delays with the bank to consider other offers throughout the escrow process.


I could go on...there are many REO threads where problems were listed, but hopefully this list will short out some people's rose glasses who say there is no greater risk with buying a REO.
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[residentialguy]

The conditions of sale are not the same. We are to verify the conditions of sale. Try that sometime with a REO. Find out the motives behind that sale. You can't. What you do know is that there is a higher motivation and undue stimulus to sell. But how much??? That will always be a mystery. REO prices are like the pattern of buck shot on the ground after being shot in the air.

 

[Meandering]

If these are all the issues with REOs in your market;

1. Why do you think they don't compete with properties that have similar issues for market value?
2. Why do you think you can't show those differences, apparent in your market, between OO and REO sales on a grid?

Yes, you can adjust for differences between the subject and comparable sales.

 

[residentialguy]

1. Any competition that they have will be reflected in the prices of non-distressed sales
2. I show the differences in the market trends. But because REOs are all over the place in price, you would have to cherry pick them by price. They're all over the place in price partly because of the huge variances in motivations and undue stimulus that we CAN'T verify, and in part because of OP's case showing that it was placed way to high of a price on the market for a REO sale (due to bad BPO or bad appraisal that gave MV not LV), and also in part of the problems of bad agents that manipulate the sales prices & offers to sell to partners for profit.

 

[Meandering]

And there it is.

Without looking, the OP's issue appears from here, that the "market value" was opined as if the subject was not an REO and was competing with OO sales. This results from one of three things. 1. Either the client instructions were to not use REOs to determine market value (An obvious USPAP issue to accept the assignment with that restriction); 2. Or at the time of the original market value opinion, there was a lack of REO sales to use as comparables, or from which to extract a market derived adjustment for the subject being an REO while all the comps were superior for conditions of sale and property rights conveyed, or; 3. the appraiser did not know how to appraise REO properties, what the potential buyer issues are, who the potential "typical buyers" are, what defeasance is included in the sales that might be physically comparable to the subject, how marketing, or a lack thereof, impacts both price and market exposure time, and simply used OO sales in a fast and done report.

And you are right REO sale prices tend to vary more widely than OO sales, usually because their conditions vary more widely than OO sales, and the rights they are conveying vary more widely, and the commissions paid to agents vary more widely, hence the marketing effort varies more widely. There is a greater opportunity for flopping (realtor to buddy underpricing) REOs, than OOs, but that opportunity also exists with short sales, and potential short sales to a much greater degree than it does with REO sales. Hence with great research those floppers can be shown to transfer properties in less than typical marketing time for similar properties and at discounted prices when compared to similar short sales, and even when compared to REOs. The issue with shorts becomes more of seller motivation weighted against the balance of the loan.

It is a lot of research, much more than OO sales require and benefits greatly from extended databases maintained by appraisers that work certain areas. It also helps to know as many agents as possible so that you can identify the "players" as an indication of when to be suspicious of a sale, and re-sale.

When you have your databases built, and your interviews completed, you'll have the ability to see the real fun in appraising, when you can move into court work for damage claims before and after, and their impact on value, and investor work opining economic feasibility for rehab and rental, or rehab and sale. Floppers don't pull it out of their backsides, much as we'd like to believe. Your value is in the completeness of your databases and your expertise in understanding costs/time, property requirements for rental or sale financing, knowledge of historic events and trends coupled with the training to forecast short term trends. This may sound like poo-poo material to you, but when you're making $3,500 to testify in court to your report because some oil company spilled oil in the homeowner's basement or yard, you'll deeply appreciate how those REOs, and all their issues play into the building of your databases, and why those $200, 4 value appraisals are not the end goal of studying the REOs and other distressed sales in the market area you cover.

Yes, you can do that as a CR and don't have to be a CG. When you really know ALL about your market, you can beat the MAI in court. Been there, seen that, was awarded the T shirt.

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[J Grant]

If the only filter is REO sales vs non REO sales, prices will be all over the place.

If the only filter is Pool vs no pool home sales, prices would be all over the place. All of which shows a search with a broad filter is of limited application when it comes to evaluating an individual property in its specific market area.

Make all the studies and data sets you want. At the end of the day, either the immediate area same type/condition property REO property is competing with your subject, or it is not.