I'm looking at one now, done in 2008. subject was REO, report purpose was for financing of a purchase. Report was completed As-Is. Ive not yet made any decisions about the report, other than some obvious massages such as including finished basements in GLA, and such but here is the dilemma.
Subject is bigger than any other REO in more than 3 years in its gated community.
Subject was newly upgraded, real hardwood floors, real ceramic floors, very large kitchen with custom built cabinets, granite counter tops, large master bedroom and bath with large jetted tub that has ceramic tile surrounding platforms. A second jetted tub in additional bedrooms section of the home. 3 car garage in neighborhood where 1 car garages were typical. 2003 listing says basement was finished, 2008 appraisal says basement if unfinished, yesterday it was a finished basement. Original appraisal says there were some plywood floors and no carpet in some bedrooms. How big "some" is is not stated, estimated cost to cure was $5,000. All photos are black, so you tell me what the "condition" is because appraisal says average and no adjustments for missing carpet were needed?. GLA was not measured correctly by both the original appraisal and the Tax Assessor (over stated) and the source of the difference is obvious in the photos when compared to the drawings, however, correct measurements still have the home larger than any other sale in the neighborhood REO or not, in the past two years.
So within two years only one sale larger, was not used in the original report but is 900 sf larger. Next sale in the neighborhood closest in size is 600 sf smaller. Difference between these two sales, 900 sf larger and 500 sf smaller is $175k. Median sale prices in the neighborhood were stable for 3 years 2006-2008. Largest sale in the neighborhood has similar upgrades and upgraded kitchen as subject, but has all the carpets and sold two years prior to the effective date.
Okay a difficult appraisal due to a lack of recent comps. This should have set off warning bells for the appraiser, but naw, nobody cared.
Of the comps used, nearest GLA was the one 500 sf smaller, sold within 90 days, has similar upgrades and no condition issues. Next comp is 700 sf smaller, no upgrades sold within 5 months. Last comp is 1,600 sf smaller and sold within 7 months, had an upgraded kitchen. All comps arm's length. The subject was REO. Only adjustments were for condition, made for the comps with the upgraded kitchens, not the one with the older kitchen, $10,000. SF adjustment was $2.50 per sf difference, positive across the board. Garage adjustment positive across the board. Finished basement square foot was included in the GLA so all GLA is over stated, and adjustments were made for not having basements on two of the three comps even though all three comps have finished basements as verified in tax records and the MLS listings. All adjustments were less than 10%, 15% and 25% with no explanations and no support.
But hey, the loan was made, the purchase completed and now it is once again a REO so they are looking back, and guess who will hold the bag for it.
Not me.
But, we did this and continue to do this to ourselves.
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