Field Review From Hell

[Tim Hicks (Texas)]

I am currently working on a Freddie Mac field review. I get full fee, but that isn't even enough for the three times the work it takes to do these anymore. Anyway, the original appraisal was done on 9/25/2001. I check the MLS on the subject property and the subject was pending on 8/25/2001 and closed on 9/25/2001 as a FNMA foreclosure property at $51,000. Nowhere in the report does this appraiser mention the pending or closing of the property, but he does state there is no previous listing or sale of the property in the past year. We have a very good MLS system, there is no way he could not have at least seen the pending listing ($52,900) that had been pending for month before he inspected the property. The appraiser used all land/home packages and came up with a $110,000 value. He left the borrower name blank and his signature date is a week before his effective date.

The trouble with doing these reviews is that you have to be more thorough and detailed than the original appraiser. We are in a non-disclosure state and I spent 1-2 hours documenting and explaining discrepancies on each of his comps (deed dates, tax records SF vs reported), showing how his age on each property was wrong,etc.

Then, I spent 1-2 hours dissecting his subject mess. No comments on condition, but it is a vacant foreclosure, SF discrepancy vs tax records, etc.

My problem came when I have to utilize my own comps. I had 23 sales within two miles. All but two were foreclosure. One that was not might has well have been. I am inclined to say in the report that the foreclosure market is the market, during that time period and that foreclosure competition has eliminated all other market activity on manufactured homes. However, I can envision the original appraiser on rebuttal ignoring everything he misreported and concentrating on saying my value is skewed because all but one are foreclosures. My opinion is that the subject was a foreclosure and the foreclosure sales best represent the subject's market at the time.

Opinions, please. Jo Anne, especially.

 

[Restrain]

Tim:

Welcome to my world. I'm doing these every month for Freddie/Fannie. Every one is a disaster. The sales used are not arm's length sales but rather new home packages. Where existing homes are used, the sites are 10 acres vs. the 1 acre of the subject, but the site adjustment is $3000 (not $3000 per acre, but $3000 total), which is totally not supportable from the market. Overall, these are MAI (Made As Instructed) appraisals. The only good thing is that MAYBE some sorry appraiser will be even more sorry after Fannie/Freddie get through with him.

Roger

 

[Jo Ann Meyer Stratton]

If the majority of the sales that have been foreclosed on and now being resold by the financial institution--then that is the market. It is the market in my area for both manufactured housing and site built housing. They are advertised by the realtors (or on HUDs list), shown by the realtors, all the open exposure to the market that a comparable should have--purchased by a willing buyer and a willing seller. The foreclosures are affecting the sales price of standard resales in my area. When someone places a home on the market, it will not only be competing with other homes being sold by individuals but with the ones being sold by a financial institution. Occasionally, one of the foreclosures will sell below market, but that is soon identifiable when compared to other arms length comparables. Your subject will be competing in the open market to whatever is available for sale--if the properties are equal and the foreclosed property has the lower asking price--that is the property the buyer try to buy. Which means the non-foreclosed property better lower their asking price to near what similar foreclosed properties are selling for to receive any interest.

So go for the foreclosed properties as comparables! That is the facts of life in some areas!

 

[Carnivore]

Jo Ann,

Do you have a preferred method in determining REO stigma? If so, would you be able to share your technique within the confines of this forum?

Thanks

 

[Tim Hicks (Texas)]

Andrew,

It is usually pretty simple, but it will always be questioned by somebody. In my case, 23 sales in which 21 are foreclosures. Factual data shows that that is the dominant market and active listings for non-foreclosure properties either expire without sale or are sold for similar foreclosure prices. Most, end up expiring and are REO properties a few months later. The competitive market is REO properties and it is relatively the only market with any activity. However, there will always be underwriters, mortgage companies and other appraisers that will argue that foreclosure sales are not suitable comps.

I do many of these REO appraisals and I simply use the REO comps and say that is the market, so that is the most probable price and opinion of value. I have done 20-25 of these Freddie Mac field reviews, but this is the first time (actually, second time, I have two done by the same appraiser) that the appraisal was performed while under foreclosure and land/home packages were utilized to greatly inflate the value. It would stand to reason that if an appraiser knew the property was listed for sale for $51,000 and $49,900, respectively, it would be hard pressed to save they are worth $110,000 and $115,000. Of course, if you do not disclose the pending sale and closed sale of the property, nobody will notice unless you are reviewed. I have this appraiser by hook, line and sinker (that was the nicest way I could word it, I had another saying, I have him by the ....). However, it has been my experience that these appraisers don't defend their appraisals, but instead attack the review, by trying to discredit the reviewer's sales and justifying theirs by arguing they were exposed to the open market in a he said/I said kind of scenario.

Roger,

Please utilize the Texas Department of Housing & Community Affairs site to obtain information about the subject and all comps on your review. It has been very helpful in discrediting the original appraisal comps and subject information. In both of these appraisals the appraiser says all the homes are one year old. This site which has all the title information on the home, shows the correct SF on the homes and actual date of manufacture. Two of the sales were actually four years old, not one year old as reported and if the lot was property was first purchased less than a year ago and by the developer less than two years ago, then if has to be a land/home package and you have proof positive since the original appraiser tries to claim the home was purchase as a one year old home in the past year. Especially when you see two-three other owners for the home, but not on that land. Tax records are sketchy since we are in a non-disclosure state, but usually it will show deed transaction dates for the reported purchaser in the year before the reported sale date. Plain and simple, the mortgage companies started demanding actual costs from the dealers and developers on the new land/home packages. To get around that, the dealers and developers would owner finance or contract for deed the properties for at least a year, then re-finance the homes for the borrowers to avoid the "one year sales history and actual cost problem". Then, they just hand out the closing statements or give the appraiser the re-finance value of these homes as actual sales, when, in fact, they have been living in the home for over a year and it is not a true sale. Have you ever seen a manufactured home set on a lot vacant and sold a year later to one single buyer? It does not happen, but all these field reviews seem to show a bunch of one year old home sales.

 

[Tim Hicks (Texas)]

Roger,

I forgot to mention. There are many times on these reviews I find my self laughing out loud and shaking my head. On this one, the appraiser did use one MLS sale. The subject is on 2.5 acres and he states it is worth $40,000. The comp sold for $143,000 and is one 20 acres. He adjusted $25,000 for the difference in 17.5 acres, $1,000 for a two car garage and lumped a 1,500 SF barn/workshop in with fenicing for a big $2,000 adjustment to get to $115,000. Yet, he will argue my sales do not represent the market as well as his????


Jo Anne,

I know this could go in either the general appraisal discussion or the manufactured home section, but I thought since it was most pertinent to manufactured home field reviews, I put it here. I hope you agree. I have no problem if you want to move it, though.

 

[Jo Ann Meyer Stratton]

I agree with your postings Tim and unless the discussion starts to drift away from manufactured homes, I will keep it on this forum for now.

When foreclosed properties are a major player in a market, there isn't any "REO stigma" to separate out because the foreclosed properties and sales by owner are being affected by the same market place. In some locations the foreclosed properties might have to sell way below the market to generate interest, same way with ERC properties, but in my particular market they are all competing on similar levels.

I guess my "technique" would be geographic competency and know the subject's market. In a way I am throwing darts at appraisers who come from the metropolitan area 125 to 200 miles away and complete an appraisal without total knowledge of the market area. They are not here often enough or long enough to do a through research so they can do a proper analysis. Quite frequently, the foreclosed properties, both site built and manufactured housing were loans based on appraisals completed by out of town appraisers. I am one of three appraisers in town and probably do close to two thirds of the REOs in my two counties. In talking to neighbors, relatives, assessor personnel I hear about the original appraiser. Or I recognize an address of a property I refused to complete or did an an appraisal on--and then got yelled at because my appraisal wasn't any where near the prior appraisal by an out of town appraiser. The other thing that is starting to hurt my area is Brokers Price Opinions ordered by the largest bank in the state, which is a violation of state law. Those loans that were based on a BPO are now going into foreclosure.

So in addition to my constant harping on research, research, research, research some more, explain, explain, explain, explain some more is geographic competency!! Know your subject's market area as well as you know the neighborhood where you live, and if you don't know the subject's neighborhood--spend sufficient time to learn it before an appraisal is completed. If you don't know the neighborhood and don't take time to know--don't do the appraisal!!!

 

[Tim Hicks (Texas)]

Geographic competency is a big issue. So, is the lure of "we have plenty of business to send your way if you play ball". On many of these field reviews, the original appraiser will give neighborhood boundaries they represent the entire county boundaries. They will use dealer supplied sales 15-20 miles away, yet there are sufficient sales within 0-3 miles of the subject property. Do they do this because they are "not competent" to do appraisals in this area, or because these are the only sales that support the projected price? We know the answer, but it should never become a question. Competency has become a defense instead of an "offense".

I am thinking about starting a new thread in the general appraisal forum titled, "Who wants to be a criminal?" I could start about ten different questions ranging from proper selection of comps, implied lender pressure to hit their value to keep business, "exposed to the open market sales, "arm's length transactions" and improper or lack of appropriate adjustments. The only trouble I see is, the answer is always the same. It takes a weak appraiser to utilize any of these improper methods. If a man is handed a gun, he is not a killer until he pulls the trigger! It always lies at the feet of the appraiser, because it takes an appraiser willing to sell his soul to make any fraudulent loan happen. You will never see me complaining about lender pressure, because that is an excuse for a weak minded appraiser!

 

[Carnivore]

JoAnn and Tim,

Thanks, I ask my question above more for the benfit of any trainee wannabees or trainees that may read this(hopeful thinking). My experience has been with many reviews of a trainee doing this kind of nonsense. Thye often are sent far afield to do much of thre work. This is so bad in NC that the state finally put distance limits on trainees(50 miles).

 

[Restrain]

It's not just trainees, it's experienced appraisers who have fallen in bed with these purveyors of cardboard boxes. There's an area west of Ft. Worth that is miles and miles of mobiles. Yet when I do a review, the nearby comps are NEVER used. Rather they go 20 miles south into another market, or north into another county.

These people are SO desperate for work they think they'll never get caught. Well, people like Tim and I are looking over their shoulders. They WILL be referred to the state. Admittedly, the state is so far behind that it may be years, but I have noticed certain appraisers showing up repeatedly in my reviews, so someone's looking not only at generalities, but at specific appraisers.

Roger