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Doing REO's

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Chris Harrison

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Utah
I was asked in another thread to start a discussion on REO's.

REO's are a different animal. Each lender has their own requirements. Some lenders want 3 sold comparable's and 3 active comparable's in an analysis grid. Some do not want you to use other REO's as comparable's, even if they have been repaired. All of my clients want interior photos of the quality of construction with a focus on needed repairs. A list of repairs and cost to cure in order to market in average condition. Some want a value to market in under 30 days (sometimes a WAG) in "as is" condition. Most want "as is" and "as repaired" value.

I use the Marshall & Swift Home Repair and Remodel Cost Guide supplemented by local contractors and suppliers (the guys that bid the work for the realtor and Home Depot or similar discount chain) to estimate my repair cost. Other than that I don't know of any publications that deal strictly with an REO appraisal. I also took the course taught by Bill Pena and he does give a lot of handouts that deal with Fannie Mae REO's.

A far as marketing to do REO work, I have found the agents and brokers that market most of the REO's in the area can give you the contacts to the lenders. Getting on the list is another issue. Most lenders are inundated with applications from appraisers and they chose them very carefully because it really is their money if the appraiser doesn't do his/her job. They calculate that each day the property is vacant it cost an average of $50 per day. They also have access to several data bases that can track properties after the sell. If the properties are being under sold, you can bet that the agent and the appraiser will not continue to be used.

Fees vary from lender to lender. Most of my clients pay $25 to $75 above the average URAR or Small Residential Income property appraisal fee. If your looking to get rich, this is not the for you. If you have a problem with having every appraisal reviewed by both an appraiser and administrator, then don't do REO's. Every appraisal will be compared to at least one BPO, a contractors bid for repair and conceivably with an AVM. Generally I never know the results of either unless there is a large spread in opinions.

Any other questions?? There are many on this forum that do REO work and have much more experience than I, sooo let the fun begin........

Chris Harrison
(Behind the Zion Curtain)
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
It has been my experience that the lender does not want to hold the property and they want to get rid of it quick. I always ask the RE agent for a list of repairs and sometimes I actually get it. I use two REO comps and one regular sale. That way I can give them their 0-90 day "as is" and their 0-90 day "as repaired". It is their problem if they don't like my opinion. Usually it is only a problem if the RE agent thinks I am too low or too high. I just appraised a 2,000 SF double wide on 1.46 acres Friday. There are about 30 REO double wide sales in the immediate area. There are less than 5 regular sales. To me, that means that the REO market is the market for this area at this time. Listings are not very helpful these type properties. Usually over half of the listings are trying to get what they over paid for MH in the beginning. The other listings are helpful because they are REO listings that are in direct competition for the property. If you were a perspective buyer and you wanted a DW MH on an acre, would you buy the one listed for $120,000 or the one needing minor repairs for $50,000. The ones listed for $120,000 never sell, the REO's do. This appraisal I did Friday has been on the market since February. I appraised it for the REO company for $56,000. The RE agent disagreed and listed it for $84,900, then $64,900, then $59,900. Now a new agent has it listed for $52,500. My new appraisal has shown a drop in the market to $50,000 with three sales from the subject addition and an additional 8 REO's that I did not use. I wonder what the lender thinks of my original appraisal now after 10 months. The traditional REO is a different animal in the REO market, but the REO-MH is a dismal market for the lender. Any questions?
 

Leon Stewart

Member
Joined
Jan 15, 2002
Many of these REO Lenders want "Market" Comps rather than REO Comps. As you indicated they want to have the option of reducing the price. They feel that they can get a better price by periodically reducing the price rather than listing it at the low REO Price from the start.

In most cases they are right, and they will get the best price by listing high because of the diversity of the interested buyers. In some cases it'll take them longer to get a deal, and the price might be the same as the low REO extimate that they could have got on a "quick Sale", as you indicated. But to avoid legal action I guess they feel it's worth the wait to try and get the best price possible. You know, "Deficiency Judgement".

leon
 
B

Bemis Pownall

Guest
looked at one today

Berm house, 1/2 the home is a pool and pool room. good quality, solar, but not much sun. small 2nd house.. values vary in market from 100K to 2 mill.

lender wants 3 sales, 3 listings......ill be lucky to find 1 good comp..
 

Jo Ann Meyer Stratton

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arizona
Jason: REO stands for Real Estate Owned. They are properties that have been repossessed by the lender, which could be a local bank or mortage company, Fannie Mae, Freddie Mac, FHA, VA, etc. Now that the lender owns the property--they need an appraisal and information on the physical condition to determine how to market it, whether to sell it as is or do some minor cosmetic repairs that would help its marketability or sell it with a repair escrow with the buyer choosing the colors/materials of the cosmetic repairs. If you ever have a chance to take a course offered by Bill Pena of the Dallas office for Fannie Mae--grap it! Even it is in another state, interfers with your schedule or budge--it would be very worthwhile. Even if you don't ever do a REO directly for Fannie Mae. Also for HUD REOs, their mortgagee letter 00-27 (27th letter issued by HUD in 2000) describes what they need in an REO appraisal, it can be obtained from the HUD.gov web site under appraisers on the right hand side of the screen.
 

Jason Cowan

Sophomore Member
Joined
Dec 12, 2002
Professional Status
Licensed Appraiser
State
Virginia
REO=Real Estate Owned.....hmmm some things in life do make sense.

Thank you for your time and consideration in helping this poor non-Acronym understanding newbie.
 
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Jason,

So many people are embarrassed to ask questions. Glad you were not.
We who post here should keep in mind that everybody doesn't know all the jargon and insiders' language.

Went to work for an S & L in 1983. Had to ask the same question. They gently explained it.
 
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Thank you, Chris for your reponse, and thanks to the others.


The National Association of Independent Fee Appraisers (NAIFA) is conducting a 4-hour Seminar on the subject during their Jan. 24 -25 get together at St. Simons Island, GA. Anyone know who the instructor is?

Brad Ellis, of NAIFA, wrote an article about REO appraising in one of their grams of Jan. 2002. The URL is:http://www.naifa.com/gram/2002jan/ellis-jan02.html

Regards,
 
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