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REO Addendum. Sitting through one class was a wake-up call.

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The Sheriff

Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
I paid for myself and my employees to take an REO class (just to see how we measured up to our competition). We had pretty good training on REO's prior to leaving our last firm at different times. However, after sitting through this class, I wonder how many people are entertaining REO work with an REO addendum for anything less than around $400. The reason being... Most of my REO work comes from one management company... and like most, they pay pennies on the dollar (but, it has been good supplemental work while I built my main clientele up and FHA rebounded).

Well... what the USPAP certified instructor stated, (who is part of AI, and also was the McKissock instructor) is that we needed to grid out comps that meet each one of our guidelines... from the client imposed "as-is" value, client imposed "repaired value", the "repaired value", and the standard "as-is" value.

She stated as soon as you place a second value on that report, you need a narrative summary of how you reached the value and gridded out comps to support that value. And this is for each value conclusion.

She also stated you need to change the definition of market value for each value, other than the "as-is" value, as the definition of market value has changed from what is on the form for the URAR 1004.

My REO with REO addendum return times to the client has doubled to almost six or seven hours to complete. Unfortunately, as my turn times are decreasing to my client, so will my volume of work from them.

I realize some appraisers utilize the management companies as their sole source of work... However, I've been fortunate not to... but since taking this class... I'm not sure how much more I can take with the standard $50 REO addendum fee that seems industry wide due to a lack of appraiser knowledge on how to complete these addendums correctly (yes, we're there as well).

I called my old boss and discussed this with him... and we both had a similar view point after he made a phone call to his chief appraiser for his firm (an old AI president)... but who is really reviewing the REO work... it's not like a 1004 on a refi or sale... I'm not changing how I write them as I'm more compliant to what the instructor taught us... but I had one the other day that had nine comps just to justify each value.

If this post helps anyone... congrats... if you read it and disregard it, I'm just wondering is there any real recourse with these assignments? I don't have that many in my name floating around before the class... however, one of my employees does and he is kicking himself somewhat.

Sorta like a manufactured home... I took a manufactured class with AI and Richard Hein (I believe that was his name) right before getting licensed... Thank God! Because my manufactured work is a work of art now (not like JoAnne Stratton's work), but damn, I try to get the report to that level.

Matter of fact... with my employees, as a way to protect them, if you haven't taken a class on appraising that type of property through AI or McKissock, I won't give you the assignment (reduces their liabilty and keeps my firm's rep looking good as the report's aren't boiler plated throughout). This forum is helpful... but nothing can top a real class with an instructor who know's their stuff.
 

Tom Barclay

Senior Member
Joined
Apr 7, 2002
Professional Status
Retired Appraiser
State
Oregon
Only when the people ordering these appraisal reports understand what you are saying will anything change.
I just got my bi-annual letter from an AMC demanding that I sign and return their fee schedule by 6/1 or I am removed from their panel(again/still). Never have signed one, won't now. One fee for an appraisal, though they do agree to pay extra for FHA, or based on a value over $750,000, or $1,000,000. And they do pay slightly more for REO reports. They don't have a clue what an appraisal is, let alone what it takes to produce a credible result. They think that an appraisal in a large metro area should be the same price as one in a rural area.
All those out there that take REO or other complex assignments that don't consider that in the fees they charge deserve the wages they earn.
 

Brad Ellis

Senior Member
Joined
Feb 7, 2006
Professional Status
Certified Residential Appraiser
State
California
Sheriff,

I think you got some potentially wrong information- and I do not care who is was who gave it to you.

While it is true that there needs to be a basis for the varying opnions of value there is absolutely no requirement in USPAP, appraisal theory, appraisal practice or anywhere esle I can think of that will require you to grid out additonal comps just to reach those value conclusions.

In fact, apart from form requirements and the GSE guidelines and govvies, there is not even a requirement to "grid" out anything for any appraisal. Those are contained in the scope of work agreement and I have never seen any- repeat ANY- guideline or requirement that compels an appraiser to grid out a separate set of comps to form a second or alternate opinion of value.

Consider this. If you do a proposed construction assignment and the client wants both "as is" and "as completed" values (remember SMT 10- now retired) did you use a separate set of comps for the "as is" value? Probably not since they would not really have even sold/closed if they were not completed.

The same thing applies to the REO assignment. Now do not get me wrong- if yo WANT to grid out the other comps, knock yourself out. But, none of us actually requires that. When you get into the extra values (as repaired MV. as is quck sale/liquidation value, as repaired liquidation value) simple discussion of what is happening and perhjaps some addresses of REO sales/listins, etc. will typically suffice. Gridding them out is not necessary- and to even do so could raise questions as well- like- do you really know the condition of that REO comps?

What I fnd most interesting- and you can tell me if that instructor covered this or did not- is that when you are doing this work the differing values are really different TYPES of value. Since USPAP requires you provide a definition and source for your definition did this instructor bother to mention that you should be adding that to your reports for the quick sale/disposition/liquidation value?

Enquiring minds and all that...

Brad
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
They're not asking for exposure time, they're asking for marketing time and a client required marketing time. This is a forecast or anticipated sales price. I suppose one could use the ERC defnition of value (although it doesn't the same financing considerations). If the client required marketing time is less than normal exposure time then discounting would need to be applied (or considered).

The price at which a property is anticipated to sell in a competitive and open market, assuming an arms-length transaction whereby:

· the analysis reflects the subject property "as is" and is based on its present use as a residential dwelling;

· both buyer and seller are typically motivated: both parties are well-informed or well-advised and acting in what they consider their best interests;

· payment is made in cash or its equivalent;

· a reasonable marketing period, not to exceed 120 days and commencing on the date of appraisal (inspection), is allowed for exposure in the open market. The analysis assumes an adequate effort to market the subject property; and

· forecasting is applied to reflect the anticipated trend of market conditions and prices during the subject property's prospective marketing period.
 

The Sheriff

Member
Joined
Mar 21, 2007
Professional Status
Certified Residential Appraiser
State
Arizona
With each summary narrative we are providing, we are restating the definition of market value. I remember the lady specifically saying she was getting $600+ per REO report (which obviously drew red flags in my head). I'm curious now to see someone else's work that covers these assignments that is USPAP compliant. She clearly stated we were violating USPAP by not gridding out the various comps to support the differing opinions of value. She was from Texas and is probably on here from time to time (Tracy Martin was her name - Just looked at my certificate from the class). She said she personally is tearing appraisers up on reviews who aren't doing them appropriately in Texas and then turning the work in to the state. So... who is right?

Here's part of my last report...

• Real Estate Owned (REO) Addendum: "As-Is" estimate of market value based on a reasonable market exposure time as rendered in the attached appraisal report

"As-Is" value is the current value of the subject in the current noted physical condition with no extraordinary assumptions or
hypothetical conditions employed as provided within the appraisal report, with market value as defined as: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financialarrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

• Real Estate Owned (REO) Addendum: "As-Repaired" estimate of market value based on a reasonable market exposure time

"As-Is" value is the current value of the subject in the current noted physical condition with no extraordinary assumptions or hypothetical conditions employed. Due to no major repairs being noted for the subject property at the time of the inspection, the "As-Is" and "As-Repaired" values are the same, with no change to the definition of market value.

• Real Estate Owned (REO) Addendum: "As-Is" estimate of market value based on a client-imposed restricted market exposure time of 0-120 days

The "As-Is" opinion of market value with the client-imposed restricted marketing time was determined to be $265,000. Market value for such an opinion, however, is defined as: The most probable price which a property should bring in an imposed restricted market exposure time of 0-120 days, with no extraordinary assumptions or hypothetical conditions employed.
The most weight was given to the adjusted sales price of comparable #1 in determining this opinion of value as it was on the market for 68 days, which is found at the mid-range of the client imposed restricted days on the market. This property is located within the subject's subdivision and shows a good indication of this restricted time. Equal consideration was also given to the current listings, as well as their current days to determined this opinion of value.

• Real Estate Owned (REO) Addendum: "As-Repaired" estimate of market value based on a client-imposed restricted market exposure time of 0-120 days

The "As-Repaired" opinion of market value with the client-imposed restricted marketing time is defined as: The most probable price which a property should bring in under the client-imposed restricted market exposure time of 0-120 days, with the subject being repaired to typical market standards. Due to no major repairs being noted for the subject property at the time of the inspection, the "As-Is" and "As-Repaired" client-imposed values are the same.
 

CANative

Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
While I admire Tracy Martin and think she is a wonderful teacher, I don't think she could make a case for not presenting sales data or "comps" in some sort of grid format.

It's just as good to list and discuss in narrative format which is what I usually do. I will often use a one line report all the sales and listings I've considered.
 

TJSum

Elite Member
Joined
Nov 12, 2007
Professional Status
Certified Residential Appraiser
State
Maryland
IMO the important factors are to properly explain what your different value opinions are and then to adequately support your opinion of value for each.

How you go about doing that, is based on the SOW you and the client agreed upon when accepting the assignment.

Stating the only way of "supporting" your value opinion for each is to have a separate market grid for each, I'm not sure where she is pulling that requirement from. Certainly one should support their value opinions with comments and explainations so that we are not just pulling the numbers out of our hindquaters, but that does not mean a grid is necessary unless it is within the SOW. She may wish to rethink sending this to the State, she might end up getting the finger pointed at her.
 

Kevin Keck

Junior Member
Joined
Jun 2, 2006
Professional Status
Certified Residential Appraiser
State
Ohio
I have been using the standard definition of market value as the normal exposer time in my market does not extend past the client imposed marketing time. When this dynamic changes I'm going to have to find a new definition of value. If repairs are needed I imagine I should be employing a hypothetical condition regarding the repairs. I am currently not doing this and I need to address this. Recently after viewing several REO addendums from competitors as well as as few BPO have decreased the amount of information included in my REO reports. I'm just not sure the end user really cares all that much. On the other hand, I don't want to cut too many corners and end up in front of my State board. I am unaware of any requirement to grid out all the comparables for an REO assignment. Often I will grid out additional comparables but only for my work file.
 
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Montana
Blink

Appraisers still operate under the USPAP relic, the three report options. The REO report addendum is not a self-contained report nor is it intended to be one. There is some argument that it may even be more properly labeled a restricted report.

Anyone caught in the instructor's net and be turned in to the State for not producing gridded listings for each line on the REO addendum might reach for USPAP and quote SR2-2 (b)

viii)
summarize the information analyzed, the appraisal methods and techniques employed, and the reasoning that supports the analyses, opinions, and conclusions; exclusion of the sales comparison approach, cost approach, or income approach must be explained;

The measure of an appraisal report is how well it conforms to the scope of work. The burden is on the appraiser to analyze, summarize and reconcile the results.

While Skippy is out there taking the lesson of the book "Blink" seriously and picking out numbers utilizing some inner thinking device, others are seriously watching the market and drawing market information from any number of sources. Appraisers have a difficult time griding out their interviews with knowledgeable real estate agents and investors who buy distressed properties.

Lenders are supplementing the REO addendum with requests for a "30 day Liquidation" value. What's up with that? A true 30 day liquidation day value can only be derived from an advertised auction with a 30 day notice. But lenders are getting desperate to unload and appraisers can find sales where lenders in desperation will accept as last and final offer that can certainly be accepted as a proxy for an auction. Again, this information is difficult to grid out.

In the last three review assignments I mistakenly took, the reports summarized the section on site value by noting that the land value was determined by "extraction." A report last night stated the value was determined by "abstraction." My complaint was not that I was not presented with a gridded analysis of the comparable used to "extract" the land value but that the report should have summarized in more detail the results of the analysis so that I would not be led into thinking the site value was determined by "blink." I am sure the Instructor would insist on seeing the "extraction" work sheets in the report. I would be satisfied with a summary and that what is expected under USPAP.


Doug
 

Brad Ellis

Senior Member
Joined
Feb 7, 2006
Professional Status
Certified Residential Appraiser
State
California
All,

Yep.

This is just another one of those instances in which an otherwise knowledgeable person goes overboard into areas they do not understand well enough.

Heck- I even forgot the hypothetical for as repaired"- OK I am old- but yet another reason to perhaps even resist doing these on the new Fannie forms.

And to Doug- you could do a 30 day liquidation value without it being part of an auction. I have some that did sell in that time period, although such a reduced time sure signals desperation!

Brad
 
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