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REO Addendum

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KYLECODY

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
When doing an REO addendum is it only things that are damaged that you list??? or anything that would bring it into typical marketing conditions??

For example the one I did had no kitchen appliances and no landscaping. The typical home is marketed with appliances and decent landscaping. Do I do a cost to cure for this or not?? Thx.
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
Kyle:

I think you have to separate kitchen appliances from landscaping. Homes that do not have kitchen appliances are typically not habitable and typically lenders won't loan $$$ on these types of properties. Landscaping is a different matter. I see a lot of homes in this area with little or no landscaping. The bootom line to be would be that kitchen applicances would be necessary and landscaping would be optional unless it just couldn't be sold without it.
 

Caterina Platt

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
Kyle,


The decision as to what needs to be repaired on 'grey' area issues like landscaping will depend on your particular subject. I've done REO's in areas where decent landscaping is the atypical. Obviously not necessary for market acceptance. I recently completed one in a high end country club community, and in that case, you bet replacement of the sod was necessary. (and probably regulated by the overactive HOA's 'Gladys Kravitz' crew).

On a mid-ranger without the HOA factor, well, I wouldn't necessarily call for a repair for landscaping, but it will definitely be addressed in the sales grid.
 

hal380

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified General Appraiser
State
Connecticut
Hi Larry;

In regard to appliances only:

Homes that do not have kitchen appliances are typically not habitable and typically lenders won't loan $$$ on these types of properties.

I understand that you need a refridgerator and stove to store and prepare food, but these are normally considered personal property as not being permanently attached etc. In my area, the MLS frequently states something to the effect that "appliances remain, or appliances do not remain." I guess I would mention it, but I personally would not call for cure. These appliances could be bought - new for $1200 or so, or used for $500+/-, or the buyer might choose to bring their own with them.

Ok folks, lets hear it from the rest out there. :beer:

Regards

Hal
 

KYLECODY

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
Appliances here are usually included in the transaction but not always, usually a bargaining point. So for my REO purposes is there a final verdict as to include appliances or not as a cost to cure?? or is it more or less another opinion.....and landscaping also?? It could sell without grass but needs to be cleaned up a bit and would sell for more if it was more similar to all else. ..Im guessing to sod grass on a 8000 sf lot couldnt be more than $500...more opinions?
 

Jo Ann Meyer Stratton

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arizona
When I put an opinion of cost to cure in my REO reports I start out with the following paragraph:

"The appraiser is not an expert in the field of building construction and actual costs may vary from those provided below. Repair costs and opinion reported herein are subject to future revision based on new repair estimates and evaluations by a licensed building/plumbing/electrical contractor. The following estimated costs to repair have been provided at client's request:"
 

Caterina Platt

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
Kyle,

Note other REO transactions to see if the lenders are repairing them.

You have to search for the answer to some questions. If your lender spent the $$ fixing the home, would there be a good or better chance of them recouping the investment plus, not just break even? Would it cut the marketing time to do so? Would it make economic sense to invest in the property or cut their losses? Does this market take a deep discount for REO's due to merely condition, or does anything with the 'lender owned' label get a significant hit in sales price vs. owner/occupied?

The best way to handle each property can change from situation to situation in the REO world. Tell them what you see, and what the market is doing. Be careful not to hit the home twice with the same repair, eg. landscaping and appliances in the repair list and under 'condition', then hit it again on the last few lines of the sales grid. Site/interior clean up is a repair list item in all cases except Fannie Mae REO's. Granted, the market will likely still discount the home for it's needs, but with Fannie Mae you just can't put it in the list. Do still consider it when you calculate your 'As Is' value.

As far as appliances go, 99% of the time I don't call for replacement of them in REO's. That is a decision for the new buyer's lender (if applicable) to require. If the stove, hood fan, and dishwasher are gone, I consider that vs. my sales comparables in the grid. Yes, it affects the value, and it is reflected in the final reconciliation. My repair requirements are items that are necessary to bring the structure to equivalent 'average' condition in comparison with it's neighborhood. ie. roof, paint, carpet, HVAC, cooling, faucets, drywall repairs, etc. Concentrate on the items necessary for structural safety and soundness, and those that would allow your market norm of financing availability and reasonable market acceptance. (usually conventional guidelines). If the walls are showing heavy soiling, scuffs, crayon art, etc., call for repainting. If it's average wear and tear, I make no requirements. Remember, the REO label will very likely still wear heavy on your subject's value. It's not necessary to turn it into 'house beautiful' unless your market would absolutely shun it otherwise.

The basic thing to remember is the lender/client is looking to you to give them the skinny on what would be the most economical, quick way to get this asset off their books and get back into collecting payments and interest. They typically want to lay out as little $$ as possible unless absolutely necessary. Do be aware of safety concerns and liability issues. If the roof is caving in, and this is a real good candidate for As Is, at least let them know to provide temporary support so it won't potentially fall on a looker and hang them with a lawsuit. If you really think the storage shed is on the neighbor's property, let them know and suggest a survey. Be careful not to make the absolute determination that there is an encroachment and call for the removal. Remember, you're not a surveyor.

Hope this helps. Please feel free to PM if you'd like.
 

KYLECODY

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
great answer caterina as well as the paragraph from Jo Ann! Thanks
 

larryhaskell

Senior Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Nevada
If the purpose of the REO appraisal is to estimate the value of the property so it is marketable, consider the minimum condition that most homes are in when they are sold, especially if financing is involved. The improvements are generally in average condition and habitable. Of the thousands of home I have appraised as a sale, I can't remember onc instance where a range/oven wasn't included. I view a range/oven as basic as a heat source, water heater and functioning bathroom. Heck, most people buying a home don't have enough money to pay their closing costs let alone buying a range/oven B4 they can move in.
 

Caterina Platt

Senior Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
New Mexico
Larry,

I would agree if we are looking at the typical owner/occupant sale transaction. Yes, the range/oven, although not technically a fixture is almost always a part of the sale. However, in the REO transaction, we are often looking at investor buyers, and if not, the potential owner/occupants are getting in at a significant discount vs. the seller occupied down the street. They know going into the place, that there will likely be some deficiencies, but it's just the nature of the REO beast.

At the time we do the appraisal, there are too many unknowns as to who the new purchaser may be. Yes, some lenders will require a 'working kitchen', however we have no idea at the time of the appraisal who may buy that house or which lender or program they'll attempt to secure. When you call for the replacement of the stove as a part of your repair list, this does not mean any of those repairs will be completed. Many of these homes transfer 'As Is'. If you don't put the stove, hood fan, et. al in the repair list, yet it is still considered when you complete the grid, (I use the last couple lines of URAR for Appliances and Landscaping for instance), you still have considered the appliances in your final estimate of value. I suppose it's all a matter of preference.

Take your HUD REO's for instance. There really seems to double standards they allow for themselves as the owner in FHA insurable financing vs. the typical owner/occupant sale. When I complete a HUD REO, I am not allowed to reflect the appliances as repair requirements. Yet, you try to sell a new home FHA without a stove. Doesn't fly past the Underwriter, does it? Same goes for missing light fixtures with them. :blink:

Whether it's on the REO Addendum as a repair item, or merely reflected in the grid, the presence or lack of appliances are considered in the value. Personally, I choose to leave the REO Addendum items for true fixtures and required components of the property. JMHO.
 
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