Foreclosed Comparables

[panappr]

I presume you use more than 3 comps in your appraisals. In LA you will run into this scenario daily. Being forced to use an REO, because some areas are a little saturated. Nonetheless, in your situation, you should be able to easily reconcile this with an additional comment, and give less emphasis to this sale as it is being LIQUIDATED by a BANK!!! (surely your user will understand). These properties are usually sold "as-is" with no warranty and in most cases need some sort of repair or general clean-up (paint/carpet, they usually do here). These properties are creating a sort of sub-market here for handymen and contractors, and generally don't attract the discriminating buyer wanting a home in mov-in condition. Additionally, the Banks motivation to market and sell these properties quickly, might add another nugget of information for your comment, as it was most likely listed below everything else, by a hungry real estate agent, who doesn't have a human being as a client.

PS

The new DQNews January 2008 (zip charts) monthly has arrived. Very interesting for those of you in California.

 

[ZZGAMAZZ]

Excluding Outlyers

IMO a single REO--or even relatively few--should be treated outlyers, which routinely are dismissed in quantitative analysis. If the appraiser defines "most probable price" by the median value, numbers that are extraordinary high, or low, can be excluded.

A previous poster noted that he includes a section entitled "Additional Market Data" within the SCA narrative, describing and explaining specific comps that weren't used...

 

[Lawrence R.]

IMO a single REO--or even relatively few--should be treated as an outlyer routinely dismissed is quantitative analysis. If the appraiser defines "most probable price" by the median value, numbers that are extraordinary high, or low, can be excluded. A previous poster said that he includes a section entitled "Additional Market Data" within the SCA narrative, describing and explaining specific comps that weren't used...

As far as a "best practices" thing goes, I suppose I understand speaking to some anomolies that aren't esily understood in your SCA narrative, but this just ffels like a slippery slope bad logic kind of thing. If I have to stop and comment on everything that isn't affecting market value, the report would never end. The neighbor's choice of car, etc...none of which affect market value...

When do you stop reporting and deliver the report?

And just to touch on someone's earlier comment, I think one would be hardpressed to consider one of my values "artificially" high. But, to under report value is just as criminal as it is to over report it--just not as profitable in all cases.

 

[ZZGAMAZZ]

PANAPER: This is way off the thread but your post reminds me of a pressing question:

Whenever I appraise a bank-owned REO that is being purchased, the property inevitable includes deferred maintenance. It's my (limited) experience that the lender/owner won't make repairs, and the lender who's financing the purchase won't fund the loan until the repairs are made.

This might be an "as is/subject to" issue that I should address in the SOW by working with my client, but I'm confused about how the process typically works. Thank you.

 

[Randolph Kinney]

In California, it is well known that many areas are declining in value. As part of that market analysis, it should be common to state the total active listings, total REO listings and total short sale listings. That immediately paints the picture of what's driving the market. And you should state it that way; bank owned sales and short sales are driving the market values lower. It is because you have less buyers over all to satisfy supply. One competes for the limited number of buyers with lower prices.

You have to say why the market is declining and what are those things that affect it. There are a reduced number of loan programs available today that buyers can qualify for. Credit conditions have been tighten. The net affect is to reduce the total number of qualified buyers.

The unemployment rate is rising and is around 4.9% for San Diego county. At some point, it will affect the stability of the market.

 

[Lobo Fan]

If there is only one REO sale it coud be disregarded as an anamoly and less than an arm's length transaction. However if there are more than one and there are multiple active REO listings, then they may be considered. I don't think an REO sale should be disregarded just because it is an REO or because the sales price is lower. It should be selected as a comp based upon similarity to the subject. If it is similar in condition, size, quality, etc., then it is a viable comp. Someone might have a difficult time explaining why it was not used. The substitution rule truly applies here.

I would look at the active and cancelled listings to get an idea ofwhat portion of the market is driven by REO sales.

It is a judgement call. I would lean towards using it depending upon where the rest of my research leads me.

 

[panappr]

PANAPER: This is way off the thread but your post reminds me of a pressing question:

Whenever I appraise a bank-owned REO that is being purchased, the property inevitable includes deferred maintenance. It's my (limited) experience that the lender/owner won't make repairs, and the lender who's financing the purchase won't fund the loan until the repairs are made.

This might be an "as is/subject to" issue that I should address in the SOW by working with my client, but I'm confused about how the process typically works. Thank you.

My own personal real estate agent and friend of 20 years, has 2 clients shes been working with for the last 3 months. They are anxious buyers 1-lawyer, 1-dentist, but want the best deal possible, and a house they can at least move into and re-decorate. It has been a test of time. So far none of the REO's have been acceptable, or at a level they are willing to challenge. This tells me that the buyers are out there, just not willing to accept the "as-is" terms most banks are presenting.

I am as curious as you are, as to how some of these properties close escrow when it states in the MLS "bring your hammer and nails". In some cases, it also will state that there are non-permitted additions, or even give a list of repairs needed. Nonetheless, they seem to close escrow with a 95%1st conventional loan, and in a timely manner?????

I can only tell you, that they must have been appraised "as-is" with an estimated "cost to cure" in the market analysis???? I wish I could review or take peek at some of these appraisals!!!!

 

[ZZGAMAZZ]

just spoke to my client who's a busy realtor: she chided me for being naivie and said "the answer is obvious: appraisers overlook necessary repairs..."

 

[panappr]

just spoke to my client who's a busy realtor: she chided me for being naivie and said "the answer is obvious: appraisers overlook necessary repairs..."

Exactly!!!! It wouldn't be very difficult in this market to expose some appraisers to the wrath of USPAP, if they've been unethical. But it seems in California nobody cares, or has the time to investigate these matters. Eventually though, I think these appraisers (skippy) get complacent, and fall head first into a barrel of snakes.

 

[Lloyd Bonafide]

My question is this...........Should a comparable that appears to have been bank owned or a possible foreclosed property be used as one of the three primary comparable?

Without knowing your market, all we can say is it depends. I would generally agree that if there is only one REO comp nearby, I would tend to not use it, but I would most likely mention it in the report.

I just finished a report where of six comps, five were REOs, and one was a short sale, (yes, the subject was an REO sale, too).