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Foreclosure Sale Stigma?

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Oregon Doug

Senior Member
Joined
Jan 15, 2002
Professional Status
General Public
State
Oregon
I do a LOT of REO appraisals and have recently noted that I can write a strong appraisal using market comps only to then find a few REO home sales that indicate as much as a 25% sale price discount to the market value. This discount seems to be a pretty good hit to the market value estimate. I got the data to back it up!

Are any of you seeing this in your corner of the country? Is it really a foreclousre stigma or are local bottom feeders starting some sort of frenzy? Does it suggest a pin-prick in the bubble and the dam is about to bust? Will market value realign itself with sale price? How will a run-up in interest rates play into this and what does it suggest for the economy as a whole?

I have a sinking feeling that I'm peering over the edge of a really deep & dark economic hole.

Oregon Doug
 

Richard Carlsen

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Michigan
Doug

We are not seeing that many repos yet up here in Northern Michigan and the houses that have gone on the block are not the kind/value that would have any market impact....except for the HUD Code manufactured houses. We are seeing a fair number of those on the block and some appear to be selling slightly below the established market levels, further softening the value levels of HUD mansec's.

Filling out the new 1004C the other day, I noted that in a 3 county market area there had been 30 HUD Code manufactured house sales in the past 9 months but there are 49 properties on the market. So with over a years supply, I believe I can now measure a slight drop in value levels in this market niche. It will be interesting to see what happens to this group come winter with the normal, seasonal drop in sales. I suspect we will see additional price reductions as the market becomes more and more saturated with offerings of manufactured houses.
 

Carnivore

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Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
North Carolina
Doug,

on a trend line have you been able to see the lag R.E. typically has with other economic news. If so could one extrapolate back to a relatively good time and extract foreclosure stigma.

I ask this because I know foreclosure stigma exist, its just seeing it when a market is simultaneously declining like portions of my market are going through now.
 

EDWARD BERRY

Senior Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Arkansas
I do all the FHA repos in a 2 County area.

In this market we can like prove the "stigma"

Now some Clients allow an adjustment for this(some place on the form it must be done)

Some put it on the concessions line.

I prefer it on the effective age adjustment line(because I have good data to explain and prove it)

Unless these factors are understood, PEPOS will be appraised MUCH too high.

You are correct, adjust and explain.(last 1/4 had 96% conformation rate)

ed in the backwoods.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Is it stigma or just the mortgage holder dumping the properties and then looking to either VA or FHA for the loan guarantee or insurance???

I prefer to use a mix of both general market sales and liquidation sales in my appraisals of REO properties. Manufactured housing is still a large problem here, highest percentage of foreclosures.
 

Karl

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Arizona
Foreclosed home & a on MLS straight "Arms Length" same street same style home, foreclosed home sells 15-25% below. MOST are now accepting our explanation concerning a "Stigma" those that put the price equal to standard sale are sitting for a long time, & then sell at below listed price Usually a lOT below the list after 190 days. More & more REO's each month people in this area have NO problem just driving away from a house. I never saw that back in N.E..
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
Have done several REO properties and there is a market for these properties. The differences to me depend on the area. The biggest problem that I see is that they request you do not use other REO properties. Which do show a difference of Market Value for seller to buyer vs. market value for REO to buyer difference. I think part of the problem is the condition that the property is in, the fact that they do not want to hold the property for to long, and agents wanting to make a quick commision. I remember one REO property that I did the agent told me and I quote "I love sticking it to the banks". He told the client that the house was worth $95K using a fire sale a father to son sale and a made up sale (no joke agents make up sales to). Then for listings he used houses half the size and damaged. We were about $35K off on value he blamed me for the whole thing. He also had a buyer in the wing to purchase the property. IMHO part of the mark down is from the agents wanting a quick sale and commision.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Most REOs need work. It may just be carpet and paint, but they need work. In this market, there is a glut of existing housing as well as competiton from new homes, both with 0 down programs. If John Q. Buyer wants to purchase, he has to deal with a conventional loan without special programs, then fix up the home by spending several thousand dollars. He's not going to do that without concessions. The other player is the investor. His return is 15% on market after fixup (talked with some investors). So, the cost involves whatever repairs are involved, marketing costs, buyer assistance, and 15% profit margin, so it's appx 25% overall plus repairs.

Roger
 

Caterina Platt

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
I too do a good chunk of REO properties for HUD and others. There is what I call a 2 tiered market. Those arm's length in avg/good marketing condition with seller/owner occupants (usually), then the lower tier is the REO set. Roger, as usual, is right on the mark. About 25% differential in closed sale prices for equivalent homes. A good number of the REO's are in average condition requiring few if any repairs. These will still reflect the 'stigma'. Part of this 'stigma' may be attributed to the 'dump it quick' mentality. I'd blame the agents in a heartbeat if I thought it were all their fault, but I don't see it that way.

I've been told that these cost the lender/owners a good chunk of $$ on a daily basis to maintain. Think about it, you have millions outlaid in mortgages. Those still 'good' are producing anywhere from 5-8% annual return on the principle (a rough average considering A paper rates of the past several years). Each month, some of the principle is returned for further use in investing, plus a good amount of interest. When an investment goes to the foreclosure route, you've lost the monthly income stream, and your return of principle becomes illiquid until the property is purchased. All that time it sits on the market, the lender is paying for the maintenance (if any is done :rolleyes: ), Realtor commissions, lawyer fees, rekeying, winterizing..... These things cause a huge liability on the lender's books. Loss of income, return of principle, risk that used to be on the homeowner (insurance, maintenance, taxes, liens, etc.) is now on their expense sheet. Knowing how stock prices are so sensitive to the accounting data, everyone is in a huge hurry to fix 'the bleeding balance sheet.'

Most lenders are interested in dumping them quickly, and the general public expects this discount. If it's not priced at the typical discount market, they sit.
 

Bobby Bucks

Elite Member
Joined
Jan 27, 2002
Professional Status
Real Estate Agent or Broker
State
North Dakota
I'm following this post with much interest because I have a certain fetish for REOs. I'm disappointed because our resident pointy headed intellectuals haven't piled on with their views on the "stigma" adjustment. A stigma adjustment is certainly warranted in many cases, but what about the very antithesis of a stigma adjustment. This is an adjustment I'm always tempted to use and I'm seeing more of them everyday. With all the late night infomercials we'll be seeing more of them with all the laid off engineers and out-sourced widget boys getting into the last frontier. It's when a foreclosure sells quickly and for full price because these neo experts recognize it as a "deal" simply because it's a foreclosure. I call it the Carlton Sheets adjustment. Where does that go in the grid? :)

P.S. I do consider Mr. Garrett to be a pointy headed intellectual, albeit a well mannered and humble one. :)
 
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