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High foreclosure rate, declining to stable market

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Diego Lopez

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Sep 11, 2006
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Certified Residential Appraiser
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Florida
For the last moth I've been working on an appraisal in a condo building that is showing high levels of foreclosure activit as well as ove a 50% decline in value the first quater of 2007.

Here is what I got written down so far:

"The subject is located in a building which is undergoing an extremely high levels of foreclosure activity, this is largerly due to investor speculation in the building during the "boom" years. Property values show a decline in values throughout the first half of 2007 of nearly 50%. Values appear to have stabilized within last four months but a continued decline is possible since values sometimes decline in a stepladder fashion (decline then stable then decline and so forth). To show this trend the appraiser has marked both the stable and decline box. Marketing time is noted at over six months, and supply exceeds demand at the precent time."

Anything else I should write to CMA (cover my A**)? Should I even do this appraisal, the foreclousure rate is very high in the building and I don't want to get in trouble? I'm considering returning the borrower their money and telling them to get someone elso to do the appraisal.
 
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Diego Lopez

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Sep 11, 2006
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State
Florida
Also if values fall more in the future and buyer defaults then what is my liability?

Please help!
 

Michigan CG

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I would list specific sales and current listings. CYA....the appraisal is made as of your effective date per the assignment. That covers your butt. Six months from now who knows...could be higher, could be lower than your current valuation.
 

Rick Johnson

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California
It is what it is......your describing the market, the neighborhood and the subject development sounds like decline to me, is the neighborhood dramatically different? What is the median sales price in the 3rd and 4th quarters of 2007 for the neighborhood, REO activity? The stabilization you note, is it due to a few sales of superior units? I'd never turn this down, it's just a great opportunity to use your skills to explain what is happening in your marketplace. Always explain so your reader understands, that's the best CYA, include all appropriate sales/listings/DOM/ List/Sales ratios etc.....all the stuff you know!! go for it!

PS future liabilty...... we can be sued for anything....make sure your scope of work explains what you are providing, if you haven't sent a letter of engagement that spells out what you are providing you may want to issue one, it may ease your mind somewhat,
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
For the last moth I've been working on an appraisal in a condo building that is showing high levels of foreclosure activit as well as ove a 50% decline in value the first quater of 2007.

Here is what I got written down so far:

"The subject is located in a building which is undergoing an extremely high levels of foreclosure activity, this is largerly due to investor speculation in the building during the "boom" years. Property values show a decline in values throughout the first half of 2007 of nearly 50%. Values appear to have stabilized within last four months but a continued decline is possible since values sometimes decline in a stepladder fashion (decline then stable then decline and so forth). To show this trend the appraiser has marked both the stable and decline box. Marketing time is noted at over six months, and supply exceeds demand at the precent time."

Anything else I should write to CMA (cover my A**)? Should I even do this appraisal, the foreclousure rate is very high in the building and I don't want to get in trouble? I'm considering returning the borrower their money and telling them to get someone elso to do the appraisal.

The "extremely high level of" is subjective (qualitative) and you should quantitate it perhaps like saying:

"The subject building has 320 units, of which 35 are reported as bank owned and 10 of the 25 listings are in pre-forclosure or a short sale situation". Give them the facts, let them draw their own conclusion.

The other thing I'd do here is look at your units and see what they sold for on a price per square foot basis over the past 4 months (where you say it is stable) and then look at the ones listed, apply the LP:SP ratio for the market to the list price, and figure out what the average price per square foot is forecasted for. If your project is as bad as you make it out, you'll find the average list price per square foot from unit to unit is lower than the average sale price per square foot. Report the findings and mark only "declining" if that is the case. If you have enough pendings, you can do the same with them.
 

Diego Lopez

Thread Starter
Member
Joined
Sep 11, 2006
Professional Status
Certified Residential Appraiser
State
Florida
The "extremely high level of" is subjective (qualitative) and you should quantitate it perhaps like saying:

"The subject building has 320 units, of which 35 are reported as bank owned and 10 of the 25 listings are in pre-forclosure or a short sale situation". Give them the facts, let them draw their own conclusion.

The other thing I'd do here is look at your units and see what they sold for on a price per square foot basis over the past 4 months (where you say it is stable) and then look at the ones listed, apply the LP:SP ratio for the market to the list price, and figure out what the average price per square foot is forecasted for. If your project is as bad as you make it out, you'll find the average list price per square foot from unit to unit is lower than the average sale price per square foot. Report the findings and mark only "declining" if that is the case. If you have enough pendings, you can do the same with them.


When I say a high foreclousure rate I mean it, I come to find out yeaterday that this building has the highest foreclusure rate in the county over 200 units are in default. Even more, I read that there is a pending FBI investigation going on in the building. With that said, It seems that there is two tiered market in the building one being REO listings / sales to investors the other being the regular homeowner listing / sales.
 

ZZGAMAZZ

Senior Member
Joined
Jul 23, 2007
Professional Status
Certified Residential Appraiser
State
California
Mr. Lopez:

IMHO the foreclosure rate that you describe appears very similar to what I'm seeing in virtually every neighborhood in Southern California. In that respect the subject development might be very "typical."

Also I'm wondering whether the 6-month decline when exacerbated by the sudden 30- 60-day decline--along with the recent paradigm change in the lending industry, actual and predicted--might reflect a change from "declining" to "stable." I want to be objective as possible and it's my opinion that the bottom--rather the "end" which appeared to be possible 72 hours ago--is near...
 

Diego Lopez

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Joined
Sep 11, 2006
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Certified Residential Appraiser
State
Florida
ZZGAMAZZ,

Im sure that tightening of credit standard by lender has had a large negative impact on this project. Also, there was high levels of speculation by investor who are now foreclosing on their properties seeing that they are 200K + in the hole. Banks will take huge losses in this project before the "end" is reached.
 
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