REO Appraisal & Foreclosure Appraisal

[Kenneth Reynolds]

I'm still trying to get my brain around what the technical differences are between the normal 1004, the REO 1004 and a Foreclosure 1004.
I understand that there are completely difference fee schedules for each and am trying to understand.
Is there a short succinct way to understand?? If not, and you don't want to bother with trying to explain is it possible to be directed to a reference. Heck there may be a seperate thread somewhere that I don't know about.
I would very much appreciate any help. Thanks

 

[Thomas Fiehler]

Not sure what a Foreclosure 1004 is but the REO 1004 is the standard 1004 with the REO addendum. It includes 3 listings, different values for as is; as repaired along with different marketing times.

 

[Brad Ellis]

Kenneth,

There is no 1004 for specific default purposes- there is only the 1004 itself.

Without geting into the shortcomings of the form (see other strings), the differences lie in the use.

The process begins with the default notice- if the default is not cured the lender must decide if/when to foreclose. To do that they need to know the current market value. This is typicaqlly for the investro to make their decision- yes sometimes foreclosure does actually happen and the loan gets written off it it does not make sense to take over the property- rare but it happens. So the first step is an appraisal for market value. Usually it is done on a drive-by form because you normally do not get access at that stage.

Next might come an attempt at a short sale/short payoff where the property is offered on the market in the hopes that someone will come along and buy it and help the borrower actually avoid foreclosure. If the yielod from that sale is less than the laon amount it becomes a short payoff. The lender will need to know what the true value is. If it is, say, $400K and they owe only $300K then no short sale occurs. But if the offer is only for $325K by the time it closes there will likely be a loss; hence the short payoff. That, too, is a normal market value appraisal and will be with interior inspection.

Now, if all that fails and the property becomes an REO, then a new assignment is generated. In that case the lender seeks 4 values- market value as is and as frepaired and liquidation value under a forced shorter marketing time of say 60-120 days (depends on the lender) both as is and as repaired.

Some lenders, like me, are quite happy to get either the new or old forms. Fannie insists on the new 1004. The REO addendum is a handly reporting tool avai8lable in all the major software packages but it is not a Fannie form. Not sure who came up with it but it is pretty good.

So recapping- market value for foreclosure, market value for short sales and both market and liquidation or disposition value for REO as is an as repaired.

Hope this helps.

Brad

 

[Mztk1]

I'm still trying to get my brain around what the technical differences are between the normal 1004, the REO 1004 and a Foreclosure 1004.
I understand that there are completely difference fee schedules for each and am trying to understand.
Is there a short succinct way to understand?? If not, and you don't want to bother with trying to explain is it possible to be directed to a reference. Heck there may be a seperate thread somewhere that I don't know about.
I would very much appreciate any help. Thanks

The normal 1004 form is for financial transactions and estimates market value.

A 1004 Foreclosure is the 1004 form without an REO addendum where you are estimating the market value of the house as bank owned. Bank owned properties typically carry a stigma and it is common for the REO to have an REO adjustment.

The 1004 REO Appraisal is the same 1004 form with the REO addendum. The REO addendum has a grid for competitive listings and a grid to itemize repairs, it also requests at the bottom a value under different types of conditions. This is also an asset management appraisal for a bank and a market reaction to REO ownership should be sought out and adjusted if necessary.

 

[JM2187]

Probably should throw in there that most clients require a complete set of interior photos with full inspection REO reports, all rooms as well as pics of deferred maintenance.

 

[moh malekpour]

Now, if all that fails and the property becomes an REO, then a new assignment is generated. In that case the lender seeks 4 values- market value as is and as repaired and liquidation value under a forced shorter marketing time of say 60-120 days (depends on the lender) both as is and as repaired.

Brad,
I need your comment on those 4 values of REO addendum because you look at many of those addendums and I would like to know how appraisers justify the market value vs. short marketing time value either in as is or as repaired.
Most REO properties are in declining markets in which the owner is not able to pay the loan and is not able to sell the property in a typical or short sale market. However there are times that REO is not due to declining market. It could be due to other factors like divorce or illness but lets try the current REO market, which is definitely due to declining market.
As you said correctly, the addendum is asking for 4 values: short marketing time value which is 60-120 and market value which is lets say 120-180 days.
I would like to know how do you expect the appraiser justify the longer DOM for the market value of the property: Do you think the longer marketing time (120-180 days) should cause a higher, lower or equal value?
In some market the values are literally declining 1-2% per month and if the appraiser says the short time market value, which would be 60-120 days, would be $200,000, what would be the market value of the same property that remains on the market 120-180 days? If we agree that the market is declining, then the market value of the property that remains on market more than 120 days would be less than short marketing time value which requires may be 1-120 days and if so do you see that in the addendums on market value that takes the longer marketing time and gets a lower value?
It seems that in the declining market, the short time marketing value is market value and the length of marketing time wouldn’t generate higher value and therefor should not be recommanded.

 

[Brad Ellis]

Moh,

The short time sale may or may not be the same as the full marketing time value. Depends upon whether in that market more exposure will translate into more potential buyers (lookers) or not and upon whethere they will actually act.

Brad

 

[moh malekpour]

Moh,

The short time sale may or may not be the same as the full marketing time value. Depends upon whether in that market more exposure will translate into more potential buyers (lookers) or not and upon whethere they will actually act.

Brad

My point is that in a constant declining market , more exposure time may trnaslate into more potential buyers but it doesn't mean that those late coming potential buyers are willing to pay higher value for that property if the value has been declined.
If you cannot sell the property for $200000 within 1-90 days and you market that property for another 90 days with more exposure and more lookers, are you going to sell it higher after all those marketing times, exposure times and lookers in a declining market or you may even have to sell it less because when you get to the 6 months exposure time and more lookers, your market has declined 5% from when you were at 3 moths exposure time and less lookers?

 

[JM2187]

Is the appraiser expected to be a fortune teller?

The effective date is where the value sits, forecasting months out based on speculation isn't the appraiser's role here (although I think many users of reports don't always understand this, while some appraisers make these jobs harder than they should be).

However, relevant narrative should always be included related to neighborhood trends, especially when negative marketing conditions exist, and are expected to continue.

 

[Mr Rex]

Joe hits the nail on the head. For all we know, the Fed reduces the overnight rate to 0 at the next meeting, and its RE nirvana all over again. I sometimes dream of the future, but I'm often disappointed when I wake up.