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Forclosures as comparables?

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Leon Marcus

Junior Member
Joined
Jan 24, 2008
Professional Status
Certified Residential Appraiser
State
Illinois
Have I been wrong? I have only done a few as is sales that are bank owned. Some ok condition actually with only a few minor cosmetic probelms. Others in horrible condition and need extensive work.

I always have been able to find at least three if not five sales of as is or bank ownd properties and have used them. In the report I describe the house and the mess, describe the sales I use are also the same condition and as is. They really have not been the majority of the market but there were sales I could use. I understand Fanny Mae says

"You will not use REO sales for your comps unless they are the market. If REO listings and sales are the market then you need to explain that fact ion your appraisal. "

I think that if I have sales of as is bank owned sales it is ok to use them. It may not be typical for the market but I describe it and use sales that actually were as is. I was just told by an appraiser that I can not and I am wrong. He stated that another appraiser that does many Forclosure sales on a very regular basis NEVER uses as is sales, only typical sales.
I understand if there are no REO properties than you use the best you have and comment. But why ignore the comaprable as is sales since they are purchased by a buyer with the same mototvation.

So, am I wrong and do I need to never, as I was told, use bank owned sales for a bank owned appraisal I am doing?
 

Ruben Ramon

Junior Member
Joined
Dec 29, 2005
Professional Status
Certified Residential Appraiser
State
Michigan
It depends on what your definition of market value is. It also depends on the intended use of the appraisal.
I will assume that this is for a typical mortgage appraisal, and put on a 1004.
You have to make the determination, along with your supervisor, who should really answer this, who the typical seller is in the market in which the subject property is in. If the typical seller is not a bank, or similarly motivated seller, than you should not use those comparables if others are available. Because if you do, you are going to not be following the definition of market value in your report. Additonally, its important to keep in mind that your not appraising the seller, your appraising the house.
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
H....... only typical sales.......

Don't listen to that guy. Typical sales today in many markets are bank owned, and in some markets there is nothing but bank owned sales.
 

G-man

Member
Joined
Feb 4, 2002
Professional Status
Licensed Appraiser
State
Ohio
One more thing.

You should also identify who is the typical buyer of the home you are appraising. If the property needs extensive repairs, then that eliminates a lot of potential purchasers, as banks will not lend on these types of homes. Cash buyers, at least in the markets I work in, are getting large mark downs on properties. REO sales, in my opinion, give an accurate trend for home values of other, similar distressed properties.
Additionally, banks are now just dumping properties for far less than market value just to get them off their books. This is creating a situation where non-distressed, bank owned properties are directly competing against owner occupied homes. Who in their right mind would pay $20K - $200K more for similar housing? It is driving down home prices and really gutting the housing market, especially in S.E. Michigan.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
When appraising a bank owned property I always look for bank owned sales as comps that sold on the open market (via the MLS). I don't use only bank owned, but I like to use at least two bank owned and two non-REO properties, that way I can see if there is a market reaction to bank ownership (which can be a stigma, i.e., form of economic depreciation).
 

Michigan CG

Moderator
Staff member
Moderator
Joined
Nov 1, 2006
Professional Status
Certified General Appraiser
State
Michigan
When appraising a bank owned property I always look for bank owned sales as comps that sold on the open market (via the MLS). I don't use only bank owned, but I like to use at least two bank owned and two non-REO properties, that way I can see if there is a market reaction to bank ownership (which can be a stigma, i.e., form of economic depreciation).

Good point, I have researched this in my community and have shown a 10-15% reaction to bank owned (as-is) vs, non-bank owned. Unfortunately the only sales now are bank owned.
 

Leon Marcus

Junior Member
Joined
Jan 24, 2008
Professional Status
Certified Residential Appraiser
State
Illinois
Here is the exact situation. House was owned by a family. Aparently they got loans and owed much more than it was worth. Could no longer afford the house, tried to sell it, it was not horrible but not perfect. Some areas of excessive wear (carpet and stuff) but nothing big. Not real dated but not real new. They could not sell it and the bank forclosed. Listed for sale for a while at again a high price in hopes to sell for close to the ammount owed but it did not sell. Lowered and a buyer offered x$$. The owner (who is the bank) accepted it. It is below what it would sell for if it was in better condition. The listing said forclosed property. So Simialr sized houses with simialr floor plans have sold for at least $70,000 more. It is nice now that most have interior pictures to provide more proof. Otehr houses in the area that said forclosure and on the marekt about the same ammount of time sold closer to this contract. I suppose i could use the nicer non forclosed houses and adjuste beyond 15-25% or the as is forclosed houses that sold close to my price. All but one (4 total) had interior pictures and were between needing just a little more work to about the same condition (a bit below average) agents confirmed this. Now I used all three as is sales. I was told by another appraiser I can not do that. At this time it deos not matter since the sale just closed based off of my report. The other appraiser, he did an appraisal on the same house for the same sale, the lender/underwriter rejected his and advised the broker to get a new appraier to do the report. That other appraier also,a s I said before, staed that someone he knows never uses forclosed comparables or as is sales (the ones listed on the market) becuase that is wrong.
So am I? Why over adjust for condition when I have at least three closed sales listed on the MLS and purchased in as is condition like mine was? The lender agreed with me. But I do know that really means very little.
 
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