REO Appraisal - Lower list price?

[Betty H Church]

In the past couple of months I have prepared several appraisals for homes that had recently been foreclosed on. These REO appraisals ask for the value "as is" and "as repaired" with typical market exposure time as well as a client imposed time of 90-120 days. Why, after all of this information is given to the bank, do they turnaround and have the listing agent offer the property for as much as $50-100K less than the value estimate?

Got another question. My son is looking to purchase a home and I have been keeping an eye out on recent listings. Came across a home listed, REO, for $119K - called the agent and he said it would probably go for around $200K - asked why they listed it so low, and he said that is what the bank said to list it for. Does that make sense? It seems to me like the banks are deliberately screwing up the market! Any thoughts?

 

[CANative]

The same thing is happening in my area. Could be:

A. Banks want a super quick sale in highly unstable markets...

B. They don't trust the appraiser...

C. They're trying out the strategy whereby a ridiculously low list price will incite a bidding war between bargain hunters.

I bought an REO last December. Negotiated to $248k from $279k. I was looking in the paper last night and saw a model match (REO) across the street offered at $199K. I suddenly had a terrible case of buyer's remorse until I was told by my assistant that there is a bidding war on this property (within hours of it being listed) and the latest bid is in the high $220's and still going up.

:Eyecrazy:

 

[Jack Straw]

Betty, I appraise in the same city you do. Recently I have seen many bank owned sales listed at extremely low asking prices. I appraised a home 3 weeks ago with a selling price of $180,000. It was listed at 125K. Talked to the agent who said the bank wants it SOLD and they dont want any additional holding costs so, they low ball the listing and have a frenzy bidding war in a market full of inventory. There were 12 offers on the home. They are finally wising up.

That may not be the case with your particular property. Most REO's have 3 or more appraisals, guess which one they like? Were you the low one? Are you making time adjustments?

Track the listing and you will find your answer.

Low listings and recent pendings are the best comps in a market where the list prices are lower than the sale prices.

 

[MZ818]

I see this everyday. Recently I've been doing alot of short sales, which the bank orders a full with REO addendum. The agent usually has the property listed at some very low price to get a buyer frenzy. Most of the time my appraisal will come in higher than their listing price. My mom's a realtor and sometimes I ask her to call up these listing agents and find out why the low listing price. She usually calls and says she has a buyer at the price listed, but every time the listing agent says we are not accepting any offers that low or there are multiple offers already.

 

[Betty H Church]

Thanks for the replies. Doesn't this sort of take the wind out of your sails as far as using an active listing as one of your Comps when its already listed so far below the market value? In such a case, you would need to make an upward adjustment to the listing in order to show the possible effect of a bidding war.

 

[aussie ken]

The same thing is happening in my area. Could be:

A. Banks want a super quick sale in highly unstable markets...

B. They don't trust the appraiser...

C. They're trying out the strategy whereby a ridiculously low list price will incite a bidding war between bargain hunters.

I bought an REO last December. Negotiated to $248k from $279k. I was looking in the paper last night and saw a model match (REO) across the street offered at $199K. I suddenly had a terrible case of buyer's remorse until I was told by my assistant that there is a bidding war on this property (within hours of it being listed) and the latest bid is in the high $220's and still going up.

:Eyecrazy:

Greg, I pretty sure your right in full measure......... with all three attracting equally measure.

 

[Richard Carlsen]

If you talk to any real banker who has anything to do with the banks audits, you will soon come to understand that the bank's do not really like to take back a house. And the thing that they least like to do is take back a house in a declining market. The reason is that if the secondary market does not come looking to sell the loan back to the originator, the bank auditors will as some very pointed questions about risk assessment, etc. And properties taken back in a declining market are of course harder to get rid of.

So what do you do when you get a property back that has a market value of $200,000 with $120,000 owing on the loan? You price it just above what is owed and get your money (or most of it) and run like hell. You do not care a tinkers dam what the MV is. All you care about is clearing out of the transaction and getting the property off of the books. That is one of the reasons why I hold that REO and short-sales should not be used when the FNMA definition of MV applies to an appraisal. The seller is just not typically motivated.

 

[Pamela Crowley (Florida)]

From our local newspaper's statistics, we now have more finalized foreclosures recorded than sales. From my own research, the few sales happening are almost exclusively the purchase of a REO, and some of those transfers include something 'wrong'. Just found an investor bought a REO using 99% FHA financing. Did FHA financing being for owner occupants only change???


BTW, I just received an email from my local Realtor's forum that is complaining about the unethical Realtors doing what the original poster wrote about.

 

[JSmith43]

Did FHA financing being for owner occupants only change???

No. Therefore something is probably amiss.

What the heck is FHA 99% financing? You mean, including financed MIP, I assume?

 

[Pamela Crowley (Florida)]

Financed amount was a bit over 99% of the sale price. I thought that was odd also and is why I brought that up. It's on it's way to HUD investigations.