Guidance On How To Appraise

[Deleted member 134708]

I have been getting a bunch of these lately but turning them down as I don't think the 1004 form is really set up for them.

Order: SFR/FHA

"Intended Use of Appraisal: The intended use of the appraisal is to develop the as-is Market Value, which is a Mortgagee’s tool for determining the list price of a HUD PFS Property (24 CFR § 203.370). The purpose of the appraisal is to determine market value on a default property."

"Intended User: FHA is the intended user of a Pre-Foreclosure Sale (PFS) appraisal."

The owner as-is, as of effective date, is a person, they are usually in default or some hardship but they are still the owners.

So if I appraise as-is with MV as defined you would come out to $500,000. This is the hypothetical transaction of MV between Axle Rose the current owner and Jimmy Kimmel the buyer. And I guess my out would be "hey in the intended use you said "appraisal is to develop the as-is Market Value" anything else you say after that is on you a decision maker/discounter etc.

If I appraise as a defaulted property/REO akin/set list price for REO etc (point is not typical transaction) It would appraise for $450,000. This is a fact. DO NOT say but but...Just accept 1 intended use is $500K, and the other $450K.

Problem: If I give them as-is current owner the value is $500K, It will do them no good and it just sits on market as an REO and eventually sells for $450K. I don't think this is what the intended user wants. Although the intended use does say MV......."which is a tool...." so I guess this could be your get out of jail card. You gave MV and that is their tool to then do their own discounting. "Hey, you asked for MV as defined, it was $500K with Axle Rose holding the deed."

I really wish there was a 1004REO form.

So again, I haven't done any of these as the form and their intended use don't really match up. There would be conflicting lingo and data flying everywhere.

How would you all go about it? If you appraise for $500K, what CYA do you use? If appraise for $450K, what CYA do you use? I don't have strong feelings either way, just want to do it the most correct way with CYA verbiage.

Facts: Typical owner/buyer sell for $500K. REO anything akin sells for $450K all else being equal. This means like, everything else equal. As in no difference but ownership.

 

[Randolph Kinney]

Just an observation: There are more than one type of buyer pool in the market. For example: There are buyers who intend to occupy a residence. There are buyers who intend to fix up and flip sale the residence. Which buyer pool is the most probable buyer? That determines what market value is, in the as-is condition.

 

[Deleted member 134708]

Just an observation: There are more than one type of buyer pool in the market. For example: There are buyers who intend to occupy a residence. There are buyers who intend to fix up and flip sale the residence. Which buyer pool is the most probable buyer? That determines what market value is, in the as-is condition.

These homes are in good condition. They are not outliers. They meet market expectations.

As-is with civilian as owner buyer would be 100% non-investors. At REO/foreclosure (good condition, just stigma related), market would be 50% non-investor and 50% investor.

 

[Randolph Kinney]

These homes are in good condition. They are not outliers. They meet market expectations.

As-is with civilian as owner buyer would be 100% non-investors.

That's your answer to your question, that is the market value of the most probable buyer as of the date of the inspection.

 

[Deleted member 134708]

That's your answer to your question, that is the market value of the most probable buyer as of the date of the inspection.

I side with this way too.

So my next question. How do I CYA against the intended use? Say they list it for $500K as an REO in a few months based on my appraisal, it sell for $450K. Let's just say this is what happens.

 

[J Grant]

"Intended Use of Appraisal: The intended use of the appraisal is to develop the as-is Market Value, which is a Mortgagee’s tool for determining the list price of a HUD PFS Property (24 CFR § 203.370). The purpose of the appraisal is to determine market value on a default property."

Give them MVO, that is purpose of appraisal. Client can determine the list price based on it, or not, their call. Likely they are getting a BPO on it as well.

"Intended User: FHA is the intended user of a Pre-Foreclosure Sale (PFS) appraisal."

The owner as-is, as of effective date, is a person, they are usually in default or some hardship but they are still the owners.

Does not matter who the "named owner" is, the MVO of appraisal presumed sale is between a hypothetical typically motivated buyer and seller ( Market value definition, as defined, are the parties in the presumed appraisal "sale")

So if I appraise as-is with MV as defined you would come out to $500,000.

That is what we certify to, yes, we use the MV definition on report.

This is the hypothetical transaction of MV between Axle Rose the current owner and Jimmy Kimmel the buyer. And I guess my out would be "hey in the intended use you said "appraisal is to develop the as-is Market Value" anything else you say after that is on you a decision maker/discounter etc.

If I appraise as a defaulted property/REO akin/set list price for REO etc (point is not typical transaction) It would appraise for $450,000. This is a fact. DO NOT say but but...Just accept 1 intended use is $500K, and the other $450K.

The purpose of the appraisal is not "Market value opinion as an REO"

Problem: If I give them as-is current owner the value is $500K, It will do them no good and it just sits on market as an REO and eventually sells for $450K.

You don't' know that. They might list it as a discount from the 500k MVO, or decide to repair/spruce it up to sell. Fannie repairs and upgrades its' REO's to market ready condition and they get prices within prevailing range or higher.

I don't think this is what the intended user wants. Although the intended use does say MV......."which is a tool...." so I guess this could be your get out of jail card. You gave MV and that is their tool to then do their own discounting. "Hey, you asked for MV as defined, it was $500K with Axle Rose holding the deed."

They want what they said, the market value opinion, and they can use it as a tool to set a discount off it if they wish.

I really wish there was a 1004REO form.

There is an REO addendum for the 1004 form, but seems the client is not asking for it.

 

[Randolph Kinney]

I side with this way too.

So my next question. How do I CYA against the intended use? Say they list it for $500K as an REO in a few months based on my appraisal, it sell for $450K. Let's just say this is what happens.

You can add to the intended use in the addendum and restrict the use and purpose as stated. mention who the most likely buyer would be.

 

[Deleted member 134708]

OK. Thank you @Randolph Kinney @J Grant Seems reasonable to me.

Go with effective date MV as defined. MY out will be you said you wanted MV and what tool that goes into is on you and not for me to decide.

 

[J Grant]

Yup , you got it! Why turn down good work, keep it simple, give them what they ask for.

 

[Deleted member 134708]

If I appraise as a defaulted property/REO akin/set list price for REO etc (point is not typical transaction) It would appraise for $450,000. This is a fact. DO NOT say but but...Just accept 1 intended use is $500K, and the other $450K.

The purpose of the appraisal is not "Market value opinion as an REO"

You are 100% correct. But REO's value are $50K less than non-REO. So my question is do you want the value it will sell for on the effective date or do you want the value it will sell for if it was a hypothetical REO today?

We agree so hold on.

I truly believe the lending system isn't set-up for REO properties and or appraisers and lending system aren't on the same page. We strictly follow MV where lenders ask for a 1004 as they are set up to intake but really truly want a hypothetical REO transaction price. I truly believe they want to know what to list this for as an REO. Problem is that's not what a 1004 communicates and the system isn't set up to take my appraisal on a word document.