Foreclosure Appraisal

[Hugh Hill]

How do you address extraordinary assumptions in a foreclosure appraisal when you are not allowed entrance into the subject? There were no functional or external obsolecence from the street or surrounding area or other properties in the neighborhood. The review appraiser noted this on a review appraisal on several places in the review appraisal.

With extraordinary assumptions, do you just automaticly give the subject property both functional and external depreciations?

If anyone can help, please respond.

Hugh Hill

 

[Carnivore]

Hugh,

You will have to give more details. Are you saying that a REO appraisal you performed got reviewed?

 

[Otis Key]

Hugh - what extraordinary assumptions are you attempting to address? Better details get better answers.

 

[Ray Miller]

Hugh,

As the other said better details.

But I would not even try to do an REO or a Foreclosure appraisal unless I could gain access to the interitor of the property.

The investor is looking for a real value of the property. In if sold in so many days or as is. With out being able to see the interitor you have not clue how to figure what the value is.

I have seen homes look great from the street, yet it would cost many thousands of dollars to repair the interitor.

 

[Jerry Lieb]

Hugh,

We consider that ALL drive-by appraisals invoke the Extraordinary Assumption clause.

We state tjat we assume the interior of the house, and the not-visible exterior portions of the house (such as rear, sides, rear of roof, year yard) are in essentially the same conditions as the exterior that we COULD see. We further state that: "if a subsequent interior inspection, and inspection of the unseen exterior portions of the house reveals that condition was not as assumed, the value stated herein could be adversely affected".

We feel that such wording helps protect us. In some cases, the Client will somehow arrange for us to see the inside and rear portions of exterior - if there is concern - which there would be in the case of a foreclosure.

Jerry

 

[Oregon Doug]

Huh! You are doing REO appraisals as "drive bys"?

Oregon Doug
(how did they get to be REO's to begin with?)

 

[Carnivore]

Oregon Doug,

Excellent point. There is absolutely no reason to do this unless of course it is pre-foreclosure and they are evaluating what action to take and they dont want the homeowner to know whats going on. I amsure there our other reasons, I just cant think of any now.

This multitude of appraisal report formats has created a real nightmare for most residential appraisers. The reason lenders chose one report format over another is not motivated by sensible need, but by supposed cost/time savings. True USPAP says the appraiser is the final determinate. There in lies the problem. Appraisers will come across as uncooperative and risk losing that business and future business by a cost shopping lender. Worse than that, lenders want cooperative appraisers, to meet there goals; the birth of Skippy.

A much greater point is that there are only two legitimate types of report formats for residential lending.

1. Traditional Internal/external inspection report.
2. Exterior inspection(the Drive by).

There are good reasons for both. Any variation beyond that is pure nonsensical from an appraisal profession perspective in residential use.

 

[Otis Key]

Is this a "pre-foreclosure" appraisal? Almost 99% of the ones I appraise that are REO's are vacant.

 

[Hugh Hill]

Let me add more details to the appraisal problem previously submitted. This was my first assignment for a foreclosed property. The three comparable sales were small brick ranch houses as were the subject and were almost clones of the subject. The comparble sales were all within three miles and from the exterior they all appeared to be fair to average condition on the exterior of the house as was the subject property. No functional or external obsolescene was observed in the subject property from the street.

The lender/client request was for a market value appraisal. If you are denied access to the interior of the house, then assume it has suffered excess deferred maintenance and/or abuse. We need this appraisal for use in calculation in foreclosure purposes. We will adjust for foreclosure stigma. (the lender says he will adjust.)

I'm interested in how you would interpret this request? also

What information can you give about what the lender/client will adjust for in foreclosure stigma?

How do you adjust none foreclosed comparable sales as to foreclosure comparable sales?

How do you adjust in the cost approach for functional and external depreciation?

If you address extra ordinary assumptions and make a minus deduction for all none foreclosure comps then the lender adjusts for foreclosure stigma, is this not double dipping on the appraisal?

The Review Appraiser commented that the appraiser failed to identify adequately the extraordinary assumption. Functional and external obsolescence were not discussed.

I welcome any comments.

Hugh

 

[Jim Onderisin]

Hugh: I imagine if I were a lender and my borrower were defaulting on the loan, I'd want to get an idea of the market value of the property early-on in the process of foreclosing. I'd probably hire a real estate agent or an appraiser (like yourself) to drive by to report about the property's condition. I'd want an idea of what the house might be worth. I'd realize that there might be problems inside, and there might not. I'd want to know what it might be worth if it were typical in condition and quality. That would give me something to start with. My guess is that that's what you're dealing with. Just take your best shot, and include the qualifications some have already mentioned. Let them know you haven't been inside, the opinion presumes condition and quality which are consistent with the observed exterior condition and quality, no warrantees are expressed regarding mechanical or structural integrity, etc. Cover it all. I've heard of some appraisers automatically deducting some percentage on the assumption that condition and quality are below-typical. I don't know what basis they have for doing that. I'd prefer to presume that the condition and quality are consistent with the observed exterior condition and quality, then include the qualifiers. Let the lender deduct for any perceived risk.