• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Fair Market Value For REO Listing

Status
Not open for further replies.

Moonhopper

Freshman Member
Joined
Jan 24, 2011
Professional Status
Appraiser Trainee
State
Maryland
I am having a hard time wrapping my head around this, so I need some input.

I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties. REO properties in seemingly similar condition typically sell for significantly less. Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property, so REO sales are the best indicator of value. Arm's length sales do not represent the property and will give an inflated value. At the current list price, the agent said there has been no activity. Using arm's length sales will put the opinion of value higher than the current list price. To use arm's length sales, I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition. Am I thinking about this correctly?
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
I am having a hard time wrapping my head around this, so I need some input.

I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties. REO properties in seemingly similar condition typically sell for significantly less. Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property, so REO sales are the best indicator of value. Arm's length sales do not represent the property and will give an inflated value. At the current list price, the agent said there has been no activity. Using arm's length sales will put the opinion of value higher than the current list price. To use arm's length sales, I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition. Am I thinking about this correctly?

You should identify the likely buyer pool for REO homes in typical REO condition. Are they owner-occupied buyers? Or are they developer/ flippers?

Once you have done that, find REO sales with the appropriate buyer, and its fair market value.
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
Although others will disagree (Where's ResGuy???? :rof:) what you have here (IMO) is a H&BU analysis-problem.

H&BU, as-improved, done correctly, will identify the buyer-type for your property and, as a consequence, the best substitutes (comparables) that the identified buyer type competes with.

If your property competes with the same kind of buyer-type that purchases REOs (and, let's be clear here: REOs that are listed on the market and sell as such. Not the foreclosure-transaction but the sale of the foreclosed property) then REOs are, by definition, the correct comparables.

If, on the other hand, your property (REO or no) would compete among a different buyer-type (an REO that was recently renovated, for example, and is competing with owner-users who would purchase a non-REO alternative if the subject were not available) then that would be the comparable-type you want to focus on.
 
Last edited:

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Moonhopper, said:
I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing

and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties.
REO properties in seemingly similar condition typically sell for significantly less.
Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps
and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property,
so REO sales are the best indicator of value.
Arm's length sales do not represent the property and will give an inflated value.
At the current list price, the agent said there has been no activity.
Using arm's length sales will put the opinion of value higher than the current list price.
To use arm's length sales,
I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition.
Am I thinking about this correctly?


1st, your thread title is for FAIR market value, which is not the same as market value sought by a GSE. Clarify your value definition.
2nd. Your REO is listed for sale, what property rights are being advertised? Full fee simple? Fee Defeasible?

(defeasible rights are those that require certain things or you lose title to the property, such as requiring the buyer to be the owner/user for at least 6
months or a year.)

If what is being sold is a fee defeasible estate, you have a legitimate adjustment against purchases that were full fee simple.

If what is being sold is, as-is, no warranty, no seller's disclosure, you may have an adjustment against risk to the buyer, who may be paying less because there is no warranty of condition nor seller's disclosure. You'd have to present some data to show that's where you got the adjustment.

And here is the ABSOLUTE killer or REO servicing companies.

IF the property is listed and the median, or typical list to sale price ratio is (???) 100% of list price, OMG how could you appraise it for more than list price. Why would "the market" pay more than list price when you have data indicating they haven't even responded to the current list price? Think about this and the possible wording, very hard, then write something that includes your opinion of value is the "most probable price" produced by knowledgeable, buyers and sellers operating in their best interests, blah, blah, and buyers are already indicating that the list price is above the most probable price, given the days on market, and considering typical marketing time, blah, blah, blah.

Now,
Can you use REO sales for market value opinions? YUP! Cite Fannie Mae Selling Guide.
Can the client tell you what class of sales to use as comparables? Nope, cite the IAEG.
Can you make condition adjustments based on old data comparables if no current comparables in similar or worse condition exist? Why of course you can, you just have that much more to write.

I feel bad for newbies in this industry.
Don't let REO companies talk you into anything.

.


 

Moonhopper

Freshman Member
Joined
Jan 24, 2011
Professional Status
Appraiser Trainee
State
Maryland
Thanks guys... this helps. I just wanted to make sure that I was on the right track before defending my work.
 

Moonhopper

Freshman Member
Joined
Jan 24, 2011
Professional Status
Appraiser Trainee
State
Maryland
Moonhopper, said:
I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing

and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties.
REO properties in seemingly similar condition typically sell for significantly less.
Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps
and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property,
so REO sales are the best indicator of value.
Arm's length sales do not represent the property and will give an inflated value.
At the current list price, the agent said there has been no activity.
Using arm's length sales will put the opinion of value higher than the current list price.
To use arm's length sales,
I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition.
Am I thinking about this correctly?


1st, your thread title is for FAIR market value, which is not the same as market value sought by a GSE. Clarify your value definition.
2nd. Your REO is listed for sale, what property rights are being advertised? Full fee simple? Fee Defeasible?

(defeasible rights are those that require certain things or you lose title to the property, such as requiring the buyer to be the owner/user for at least 6
months or a year.)

If what is being sold is a fee defeasible estate, you have a legitimate adjustment against purchases that were full fee simple.

If what is being sold is, as-is, no warranty, no seller's disclosure, you may have an adjustment against risk to the buyer, who may be paying less because there is no warranty of condition nor seller's disclosure. You'd have to present some data to show that's where you got the adjustment.

And here is the ABSOLUTE killer or REO servicing companies.

IF the property is listed and the median, or typical list to sale price ratio is (???) 100% of list price, OMG how could you appraise it for more than list price. Why would "the market" pay more than list price when you have data indicating they haven't even responded to the current list price? Think about this and the possible wording, very hard, then write something that includes your opinion of value is the "most probable price" produced by knowledgeable, buyers and sellers operating in their best interests, blah, blah, and buyers are already indicating that the list price is above the most probable price, given the days on market, and considering typical marketing time, blah, blah, blah.

Now,
Can you use REO sales for market value opinions? YUP! Cite Fannie Mae Selling Guide.
Can the client tell you what class of sales to use as comparables? Nope, cite the IAEG.
Can you make condition adjustments based on old data comparables if no current comparables in similar or worse condition exist? Why of course you can, you just have that much more to write.

I feel bad for newbies in this industry.
Don't let REO companies talk you into anything.

.

Moonhopper, said:
I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing

and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties.
REO properties in seemingly similar condition typically sell for significantly less.
Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps
and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property,
so REO sales are the best indicator of value.
Arm's length sales do not represent the property and will give an inflated value.
At the current list price, the agent said there has been no activity.
Using arm's length sales will put the opinion of value higher than the current list price.
To use arm's length sales,
I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition.
Am I thinking about this correctly?


1st, your thread title is for FAIR market value, which is not the same as market value sought by a GSE. Clarify your value definition.
2nd. Your REO is listed for sale, what property rights are being advertised? Full fee simple? Fee Defeasible?

(defeasible rights are those that require certain things or you lose title to the property, such as requiring the buyer to be the owner/user for at least 6
months or a year.)

If what is being sold is a fee defeasible estate, you have a legitimate adjustment against purchases that were full fee simple.

If what is being sold is, as-is, no warranty, no seller's disclosure, you may have an adjustment against risk to the buyer, who may be paying less because there is no warranty of condition nor seller's disclosure. You'd have to present some data to show that's where you got the adjustment.

And here is the ABSOLUTE killer or REO servicing companies.

IF the property is listed and the median, or typical list to sale price ratio is (???) 100% of list price, OMG how could you appraise it for more than list price. Why would "the market" pay more than list price when you have data indicating they haven't even responded to the current list price? Think about this and the possible wording, very hard, then write something that includes your opinion of value is the "most probable price" produced by knowledgeable, buyers and sellers operating in their best interests, blah, blah, and buyers are already indicating that the list price is above the most probable price, given the days on market, and considering typical marketing time, blah, blah, blah.

Now,
Can you use REO sales for market value opinions? YUP! Cite Fannie Mae Selling Guide.
Can the client tell you what class of sales to use as comparables? Nope, cite the IAEG.
Can you make condition adjustments based on old data comparables if no current comparables in similar or worse condition exist? Why of course you can, you just have that much more to write.

I feel bad for newbies in this industry.
Don't let REO companies talk you into anything.

.

The engagement letter said 'Market Value', their stip requested 'fair market value'. I am currently nursing a 5 month old and have mommy fog brain. I just needed some reassurance. :) Thanks for the input!
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I am having a hard time wrapping my head around this, so I need some input.

I am doing a report for a REO listing. Per the engagement letter: Purpose: REO, Type of Value: Market Value.

It is currently a REO listing and is in typical REO condition... utilities off, mechanical systems condition unknown, appliances gone, deferred maintenance, etc.

In this market, non-REO properties are not comparable to REO properties. REO properties in seemingly similar condition typically sell for significantly less. Also, it is not common for non-REO properties to be in 'typical REO condition'.

I submitted the report with REO sales as comps and the client is telling me to use arm's length sales as comps because they want fair market value and not liquidation value.

The property is a REO property, so REO sales are the best indicator of value. Arm's length sales do not represent the property and will give an inflated value. At the current list price, the agent said there has been no activity. Using arm's length sales will put the opinion of value higher than the current list price. To use arm's length sales, I would have to make it subject to the hypothetical conditions that the property is not REO and it is in typical marketable condition. Am I thinking about this correctly?

Your mistake was calling it "REO condition". I understand why you did that, but it's not correct. We should describe the property as good, fair, poor avg condition etc. Or in UAD terms ( does assignment call for UAD?)...is the subject a C4 or a C5? Your hypothetical idea makes no sense. REO is a type of ownership, not a type of property. You confused the issue by calling them "REO properties". If the properties most similar to your subject in condition and appeal turn out to be all REO owned so be it, but don't call them "REO properties"

See if you can find one none REO owned property in fair condition to use as an additional comps. Explain that the reason you chose comps for your subject was not because they were REO owned, but because they were the most similar in condition sales found, and vacant as the subject is an appeal issue. (I assume the REO owned comps you used were exposed on open market on MLS and not sheriff sales or auction sales?)

Your client is also confused about liquidation value, which implies a limited time frame to sell and limited marketing effort. Review the types of value before responding to client.
 

residentialguy

Elite Member
Joined
Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
lthough others will disagree (Where's ResGuy???? :rof:)
Here I come to save the day!!!
The property is a REO property, so REO sales are the best indicator of value.
Incorrectamundo. You are appraising to market value where the buyer and seller have typical motivations....and banks are far from that. What is the cost to cure on the subject? You can't find any typical arm's length sales in similar condition? You can use an REO as a comp, but they come with problems. We need to verify the comps motivation. Who are you going to talk to about that REO? The agent? You'll get a deer in the headlight look. The bank? Good luck with that.
 

residentialguy

Elite Member
Joined
Mar 24, 2009
Professional Status
Certified Residential Appraiser
State
Minnesota
IF the property is listed and the median, or typical list to sale price ratio is (???) 100% of list price, OMG how could you appraise it for more than list price. Why would "the market" pay more than list price when you have data indicating they haven't even responded to the current list price?
You're kidding, right? The market will pay more when all conditions of MV are met...and with REO sales, they are not met, thus why they sell lower.
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
The engagement letter said 'Market Value', their stip requested 'fair market value'. I am currently nursing a 5 month old and have mommy fog brain. I just needed some reassurance. :) Thanks for the input!

Please don't give the baby colic over an appraisal.

Babies are more important than REO appraisals.

If they are stipping you for "fair market value" they are idiots.

If you need the money, you might point out that fair market value is for the IRS, and if they want your report to be compliant with IRS regs, they needed to state that in the letter of engagement, so you'll just have to raise your fee an additional $100 to comply with IRS regs.

In this business, stupid questions always deserve stupid answers.

.
 
Status
Not open for further replies.
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks