Disposition Value Form

[J Grant]

A lender can not demand that REO comps be excluded. They can suggest not using all REO comps if possible, or when REO sales don't reflect the market
They are asking for exclusion because DUHpprairers made brilliant assumption (sarcasm), that since subject is REO owned, thus use all REO comps. I will use REO comps on some appraisals if appropriate as best comps but will not use them on others, as market improved have rarely needed to use an REO comp (but I do far fewer now anyway)

 

[Meandering]

When I've done these,

And I've done more than my share.

I always look for at LEAST 4 comps. 2 that were owner occupied, and 2 that were REOs, to demonstrate the adjustment for...

wait for it...

CONDITION OF SALE.

Because you can't adjust for the owner.

You develop market value considering the condition of the sale, being sold as an REO, which in a segregated market, sometimes demands a price discount, but not always, that's why you need at least two comps that were not REOs in order to demonstrate why, or if, the condition of the sale, Higher buyer risk, is impacting sale prices and segregating the market into sub-markets.

Also,

Be aware of your subject and REO comps rights conveyed. Especially if purchased under the HUD first look or whatever it is program, where the sale is not a transfer of fee simple interests, but rather is a transfer of DEFEASIBLE interests, in that the DEFESENCE is that the buyer must occupy within X days and must remain as the buyer's primary residence for X days before being resold.

All these things must be considered when dealing with REO subjects and comps. Which means you read EVERY transfer deed for the comps and you QUESTION the seller/owner.

.

 

[Meandering]

When I've done these,
And I've done more than my fair share of them.

I look for AT LEAST 4 comps, 2 REO and 2 Owner Occupied.

The comps will demonstrate if there is a sub-market for REO properties. If there is, and the Owner Occupied sales sell at a premium, you discount those sales for the condition of the sale, because the REOs represent a higher risk to buyers who, according to market data, demand a discount on the price. If no price differences between OO and REO, then, there is no submarket, so all the comps are valid without adjustment for condition of sale.

But be aware of the subject and the REO comps in the property rights they are conveying. Especially those with the HUD and FHA first look, or whatever that program is called. Those ones do not transfer fee simple rights, but rather transfer as DEFEASIBLE rights with the DEFEASANCE being that the buyer must occupy the property within X days of closing and must remain in the property as their primary residence for X days. Typically if that's the rights conveyed, income approach is not warranted for SFR as there is no opportunity for buyers to rent them within a year of the sale.

This also helps you to define your typical buyer for the subject property, as investor, or not an investor, or as an owner occupier, because investors usually do not by REOs to live in, but rather to rent them out.

You will not know about your subject without out ASKING YOUR CLIENT unless you have a consummated agreement of sale or a current listing that states the buyer must occupy as a primary residence.

So your additional considerations for the REO assignment are
The condition of the sale
And property rights conveyed
As these can be very different than your typical OO sale, and can impact a sale price, or may indicate a sub-market or a segregated market.

.

 

[Meandering]

When I've done these,
And I've done more than my fair share of them.

I look for AT LEAST 4 comps, 2 REO and 2 Owner Occupied.

The comps will demonstrate if there is a sub-market for REO properties. If there is, and the Owner Occupied sales sell at a premium, you discount those sales for the condition of the sale, because the REOs represent a higher risk to buyers who, according to market data, demand a discount on the price. If no price differences between OO and REO, then, there is no submarket, so all the comps are valid without adjustment for condition of sale.

But be aware of the subject and the REO comps in the property rights they are conveying. Especially those with the HUD and FHA first look, or whatever that program is called. Those ones do not transfer fee simple rights, but rather transfer as DEFEASIBLE rights with the DEFEASANCE being that the buyer must occupy the property within X days of closing and must remain in the property as their primary residence for X days. Typically if that's the rights conveyed, income approach is not warranted for SFR as there is no opportunity for buyers to rent them within a year of the sale.

This also helps you to define your typical buyer for the subject property, as investor, or not an investor, or as an owner occupier, because investors usually do not by REOs to live in, but rather to rent them out.

You will not know about your subject without out ASKING YOUR CLIENT unless you have a consummated agreement of sale or a current listing that states the buyer must occupy as a primary residence.

So your additional considerations for the REO assignment are
The condition of the sale
And property rights conveyed
As these can be very different than your typical OO sale, and can impact a sale price, or may indicate a sub-market or a segregated market.

.

 

[residentialguy]

I have done several hundred of these over the past years, how many have you done? I am aware that since there is an REO addendum and bank owns it, it will be sold as an REO owned property.

Tthey STILL want an opinion of market value if they order on a 1004 form and letter says it and that is what I provide. You have an issue using REO as comps on MV purpose appraisals , which is why you have to twist yourself into a pretzel using made up hybrid value definitions or insisting the client "really" wants a different value etc. Because that's the only way you can justify using an REO as a comp and not adjusting for it is my bet.

On the REO addendum if client has imposed marketing time of X days they will get a second opinion if market indicates it. OMV in 60-90 days exposure for example

I am well aware that these lenders tend to also get BOp's and CMA's from the listing agent who might suggest listing it at a different price than my OMV. Or the asset division might decide to list it, or sell it at a different price than my OMV. But I did my part and provided what they asked for. BTW looking at past performance I have a good track record of REO and short sale opinions I provided selling for close to the OMV many times for whatever that is worth

Sorry to say, JG, but you've handle several hundred incorrectly, imo. And so have countless others that have done orders like OP's without clarification.

Speaking of " hybrid value definitions"...let's look at that lovely Sup REO addendum...it asks for market value (4 times) Question regarding the last 2 that of restricted market exposure : If MV requires adequate market exposure, how can you change that requirement and still call it "Market Value"? Yet another Fannie Fail that falls on those of us that comply.

But...using Fannie Mae's MO of randomly changing the conditions of market value, then you can change it to the most probable price which a property should bring as a REO sale.

Personally, I think we should just use the term Market Value and state the conditions that fit the needs of the client.

 

[BRCJR]

OREO vs. REO

 

[residentialguy]

Wow...Marion hit a triple, lol

 

[Mr Rex]

You shouldn't make fun of stutt, stutt, stutterers...

 

[residentialguy]

I look for AT LEAST 4 comps, 2 REO and 2 Owner Occupied.

The comps will demonstrate if there is a sub-market for REO properties. If there is, and the Owner Occupied sales sell at a premium, you discount those sales for the condition of the sale, because the REOs represent a higher risk to buyers who, according to market data, demand a discount on the price. If no price differences between OO and REO, then, there is no submarket, so all the comps are valid without adjustment for condition of sale.

I don't like the direction you're going with this Marion. That's like saying if a 2 story is selling for the same price as a 1 story and selling for the same price in Ca as they are in MN, they're all good to use as comps for each other. The conditions of the sale are just as important as the improvements and location in being comparable, regardless of price equivalence. Yes, sometimes you have to cross over, if you need to. But if you don't need to, then don't. Stick with apples to apples.

 

[Deleted member 134708]

If the assignment was for "asset valuation" I'd give them MV on 1004 w/ REO like ordered. They may be using it for mark-to-market accounting or mark-to -model.

If it's to sell an REO in an area where REO's sell at a discount, I will not be giving them MV on a 1004.