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Question About An REO Property.

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Bill Moll

Freshman Member
Joined
Jan 9, 2003
Professional Status
Real Estate Agent or Broker
State
Wisconsin
Hello Everyone:
I have been reading this site for some time now, and I am considering becoming an appraiser myself. I have even found someone to mentor me before I jumped the gun and went thru all the training. But I do have a question about an REO property I am interested in.

I have bought and sold 3 homes in my 31 years of life. This REO property is the first that I have ever had the bank call most of the shots on. This is also the first REO property I have ever tried to purchase. It seems that Banks aren't too willing to negotiate much on REO properties. This home is a 7-year-old ranch with full exposed basement on 5 acres. It has sat empty for 2 years, but had been fully winterized. The original owner didn't do any structural damage to the property other than he removed the carpeting and drop ceiling from the basement. I have researched the history on this house and the original owner built it new for $254,000. Its 2450 sq ft up, and 1800 down. 5 bedrooms, 3.5 baths. The bank tried to sell it for the $254,000, 2 years ago, and then dropped the price to $199,700, 1 year ago. Now the bank is asking $179,900 as of 2 months ago. The fair market value on the tax bill for last year is $188,900. I live in an area that mainly attracts people who are retiring or wanting to vacation. Not a lot of industry or money in the area that people can afford houses over $200,000. I have done 3 walk thru's on the house, and had a home inspector look the place up and down for me. No defects were noted other than the missing carpeting and drop ceiling in the basement.
The bank is pretty much selling the property as is. They won't pay for or allow for anything such as inspections and such. They will get the $179,900 or nothing. Here is the kicker, I was talking to the loan officer the other day at the bank I am using, about the concerns I had about the over valuations of properties. I told her I didn’t want to get stuck in a home were an appraisal is done just to make the loan happen, and I asked her if I were to hire an appraiser independently to appraise the property, would they have a problem with that. She told me that if I used an appraiser in the area that they use, that they would even probably use that appraisal for the loan paperwork. Then she said the thing that made me cringe. She said I should use Appraiser A, or Appraiser B, but don’t use that Appraiser C, as he has killed several of our deals in the last 3 months with low appraisals. Well I happened to go to real estate school with Appraiser C, and he has appraised two of my other homes in the past, and I thought he did everything fairly. I am considering running far and fast from this bank, and going with some other bank that’s not local. Does anyone have any input in how I should handle this situation? I would appreciate any and all comments.

Thanks
Bill(WI)
 

Tim Hicks (Texas)

Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
You have stumbled upon the biggest problem with the lending industry. The loan officers and RE agents are commission driven. They don't make money unless a property closes. It is like having the fox guard the hen house. They will find an appraiser to make their deal work or they will "pressure" an appraiser to make their deal work. They do not care about the borrower, the appraiser, the bank or anything else except their commission check. If I was buying a property, I would not want to pay one penny more than it is worth. If the property does not appraise for the contract price by an honest, ethical appraisal, then the buyer should not buy the property or the owner should lower their price. Explain that to your loan officer. If he/she does not agree then take your business elsewhere.


The appraisal profession was originally designed to protect the banks, mortgage companies and borrowers from overpaying and over-lending. But, somehow the appraisal profession has descended down a dark path that few appraisers remember the origin.
 

aprazer

Junior Member
Joined
Feb 27, 2002
Professional Status
Certified Residential Appraiser
State
New York
The loan officer has given you some valuable information.
She just told you who is probably the more accurate appraiser.
Appraiser C is the guy you want for an appraisal. You want to know what the property is really worth, not what will make a loan work.

Beyond that-go with the lender that gives YOU the best terms. Period. Once you have an accurate value, it doesn't really matter which lender you use if the terms are equal. 95-99% of the lenders have loan officers who think the way you mentioned. There is a sleaze factor at virtually every lender-just in different degrees. But the bottom line is who gives you the best terms. There is a high probability the loan will be sold to someone else anyway-and once a loan is closed there is minimal contact with the lender.
 
W

walt kirk

Guest
Have appraiser C perform the appraisal for you, that way you will get an honest valuation. Don't show the appraisal to the bank. Make an offer to purchase the property for an amount less than the appraised value. Most banks do not want to hold property for a long time, it reflects poorlyl on their balance sheet. Should the bank refuse your offer you can always increase it but under no circumstances should you pay a penny more than the estimate of value provided by the appraiser that you trust.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I agree with Walt. You want Appraiser C for your negotiations. You can also do your preliminary loan negotiations with the report to see who will give you the best deal, especially with "creative" financing (less than 1 year, interest only - that sort of thing). I would also ask Appraiser C to look at the home as if repaired and ready for marketing. That should give you an idea as to return vs. costs. It may be attractive as an owner occupancy for a Do-it-yourselfer, but not give a reasonable return on investment.

Roger
 

Tater Salad

Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Missouri
...and ask appraiser C who the good-guy lenders are in the area. He can probably tell you. You have to wonder, if they have ethical failings when it comes to appraisals, where else are their ethics weak? :unsure:
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Have the property appraised (I would use C).

Make a formal offer to the bank. Put inspections in your offer, those are typical in today's real estate transactions.

Start your offer a little lower than what they are asking...they just might be ready to get rid of this assest and move on.

Remember you are in the driver's seat, not the bank. Seems they can't sell it and have been sitting on it for awhile.

Their favorite appraiser isn't doing them any favors if he is over valuing REO properties. Would love to have had that conversation about "their appraiser" on tape.

Good luck!
 
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