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Foreclosure Appraisal Question

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angdw

Thread Starter
Freshman Member
Joined
Mar 9, 2007
Professional Status
Certified Residential Appraiser
State
North Carolina
I recently inspected a foreclosure property, which was Winterized and the water was turned off, due to a leaking toilet.

The seller is selling the property "as-is"; however, as an appraiser, I was not able to check the mechanical and plumbing systems and was told about the leak by the listing agent.

I completed the appraisal "subject-to" the repair of the leak and an inspection of the mechanical and plumbing systems.

The lender wants the appraisal "as-is", without any repairs or checking the mechanical and plumbing systems.

I don't think an As-Is appraisal is appropriate, given the fact that I could not fully inspect the property.

Any advice on handling this situation?
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Did your comparables have operating plumbing and heating systems? If so, you may need to do another appraisal with sales of homes in foreclosed condition.

The AS-IS or SUBJECT TO discussion should have taken place prior to the initial work you did on the appraisal.

The first step in the appraisal process is always to DEFINE THE PROBLEM! You always have to discuss prior to the commencement of the assignment the SCOPE OF WORK with your client. What are they expecting at the end of the process? Cost, Income, and Sales approaches or just one or two?

You erred in not properly setting up the assignment.
 

angdw

Thread Starter
Freshman Member
Joined
Mar 9, 2007
Professional Status
Certified Residential Appraiser
State
North Carolina
I had good comparables for the appraisal and also called the lender upon returning from the inspection and stated up front, that I would need to complete subject-to inspection of these systems and discussed the plumbing leak. The lender agreed that subject-to was the way to go; however, the seller of the foreclosure property will not allow any repairs or inspections (they are selling as-is), so now they want the appraisal as-is, without any additional inspections or repair.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Then make a deduction for the "pig-in-a-poke" factor. If you've got a very active REO market, it should be measurable (typical distressed sale vs. "as is").
 

Ion Caza

Sophomore Member
Joined
Oct 21, 2005
Professional Status
Certified Residential Appraiser
State
Michigan
Most of my work are foreclosed properties. None of them has utilities on. I always do an "as is" appraisal and use at least three comps foreclosed properties. It is in Detroit and its almost impossible to find private owned properties. Usual fourth comp is a bank owned too because the difference between a private owned and a bank owned is at least 30-40% and I consider that such an adjustment makes the comp not to be comp.
 

Kali the Boston Terrier

Senior Member
Joined
Jul 7, 2003
Professional Status
Certified General Appraiser
State
Michigan
Only about 1-2% of the REOs I do have the utilities tuned on. Typically I make an extraordinary assumption that the system is functioning. I f I notice the water meter is broken off, I will typically cite that as a repair in addition to the EA. However in some instances the systrem is clearly not functioning and I will either call for the entire replacement of the system...blah.

I think the direction you were going with the "Subject to" is reallly an extraordinary assumption of the functioning of the system. "Subject to" is really a form derived statement and not really technical USPAP. If you were truly using "Subject to" correctly you would be making a hypothetical condition...in that situation you are basically saying I now the system is broken but I am going to pretend otherwise. In a extraordinary assumption you are essentially saying I have no idea of the systems functionality, but I will assume it functions until I know otherwise.

Selecting the "Subject to" box is not neccessary as long as you complete describe any and all EA or HC you used to derive your value opinion. The client is right for not wanting it checked "Subject to"...it kind of reflects you do not do many of these, kind of a newbie mistake of someone who did a lot of mortgage financing work and is now trying their hand at REO.
 

angdw

Thread Starter
Freshman Member
Joined
Mar 9, 2007
Professional Status
Certified Residential Appraiser
State
North Carolina
Maybe I should rephrase my question. I have done REO work "as-is" in the past with the utilities typically off and the property Winterized; however, in this case I was made aware of a substantial leak, which flooded the hallway. The water was turned off for this reason. I checked "subject-to" and called for repair/inspection of the plumbing issue, as this is considered to be a deficiency that could affect the soundness or structural integrity of the property. It is my understanding, in a case where structural intergrity may be affected, you complete "subject-to" and call for alterations or repair. Any advice to the contrary???
 

Em Tee

Senior Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
California
Maybe I should rephrase my question. I have done REO work "as-is" in the past with the utilities typically off and the property Winterized; however, in this case I was made aware of a substantial leak, which flooded the hallway. The water was turned off for this reason. I checked "subject-to" and called for repair/inspection of the plumbing issue, as this is considered to be a deficiency that could affect the soundness or structural integrity of the property. It is my understanding, in a case where structural intergrity may be affected, you complete "subject-to" and call for alterations or repair. Any advice to the contrary???

That sounds more like an FHA requirement. If it's not FHA, you can certainly do the appraisal "as is". Re-read Stefan's post #2. He gave you good advice.
 

Metamorphic

Senior Member
Joined
Mar 15, 2008
Professional Status
Certified Residential Appraiser
State
California
If they have to have as-is appraisal, I'd make the not so extraordinary assumption that the system is broken and that repair of the system and the evident and presumed water damage will require $zzz and lower the market value by that amount. They may just decide that they'd rather pay for a plumber to look at it and a re-inspect.
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
Maybe I should rephrase my question. I have done REO work "as-is" in the past with the utilities typically off and the property Winterized; however, in this case I was made aware of a substantial leak, which flooded the hallway. The water was turned off for this reason. I checked "subject-to" and called for repair/inspection of the plumbing issue, as this is considered to be a deficiency that could affect the soundness or structural integrity of the property. It is my understanding, in a case where structural intergrity may be affected, you complete "subject-to" and call for alterations or repair. Any advice to the contrary???


I'm with you on this one. Our client is the lender, the person lending the money, do they really want to loan on a property that has a sustantial leak which could damage the structure of the home? I think not. Who cares about the seller, borrower or agents involved, they are not our client or the ones funding the loan.

If the seller refuses to repair prior to selling, let the parties involved set up an escrow situation so that the lender makes sure the repairs are made ASAP after settlement.

These sellers of foreclosure properties, it is amazing how much they will cooperate once they see that this the only way to close the deal, stand fast. Clients can not negate minimum property standards for Fannie/Freddie or FHA.
 
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