REO Appraisal Supplemental Addendum Help!

[Dave1027]

Does any one have a copy of just their REO Supplemental Addendum they could email me ? drogers3@tampabay.rr.com I just want to make sure I'm doing this right it seems like every bank wants it a little different?

I'm having trouble with the section:
______________________________________
AS-IS
AS-Repaired
AS-IS "90-120"
AS-Repaired "90-120"
______________________________________

What percentage do you deduct for the "30 quick sale value" ?

Example: if the appraisal came out to $125,000 on the sales grid

But it had $2,500 in Deferred Maintenance

-------------------------------------------------------------
AS-IS $125,000 (sales Grid Final number)
AS-Repaired $127,500 (with $2,500 in Def Maint)
AS-IS "90-120" $110,100 - 12% (example percentage)
AS-Repaired "90-120" $112,200 - 12% (with $2,500 in Def Maint)
----------------------------------------------------------------

the "30 day quick sale value would be $110,100 ????

does this look right?

If any body can help and send a copy that would be great! I'm a little confused.

 

[Doug Wegener]

In the REO's Im doing the client generally wants an "as-is" value with typical marketing times .

In the REO addendum they have been asking for a client restricting marketing time of 60-90 days as well as "as repaired" values.

Most of the time in my area there is no difference between the two. There is no set percentage you use. Look at the marketing times of your comparables to derive an adjustment for those that sold within the client restricted marketing time and those with longer marketing times ( if there are any).

Also be aware that an adjustment for deferred maintenance is not necessarily the cost of
repairs. That also needs to be derived from the market.

 

[JENIFFERW]

Dave, I just e-mailed you a sample of the form. As far as the "as-is" and "as repaired" value, it's not a dollar for dollar difference based on cost.

The "as-is" value needs to consider the discount needed for a typical buyer to be willing to take on the project. People buy fixers because they want to save money on the house and do the work themselves. If you only consider the exact cost to do the work, why would they bother? There is time and effort involved. If you are using like comps that need similar work, that is the best.

Similarly, the "as repaired" value should be based on the market's reaction, not just the "as-is" value, plus the exact cost of the repairs. What are fixed up properties selling for?

The marketing time of 90-120 days may or may not change your opinions of value, depending on your market areas typical marketing time. For example, in my area typical marketing time given a realistic list price is 90-120 days, therefore the opinions of value don't change. If your typical marketing time in your area is longer, than you should look at the sale prices of similar properties that sold within 90-120 days (both needing repairs and repaired properties) in your market area.

There are much smarter appraisers than me here, but that's my take. Hope it helps.

 

[VegasWayne]

In my market the 90-120 days is usually the appraised value. REO properties that take longer to sell will usually have a price reduction and may sell for less than they would have if they were properly priced from the beginning. I have seen houses that have had a price reduction of 10,000 a month for nine months then finally sold. If these had been priced realistically from the beginning they would have sold quickly and for more than the seller finally recieved.

 

[Flygirl 152]

Hi Dave,

I am out of town right now for a family emergency, but had a few free minutes and thought I would respond to your post.

In order to determine those 60-120 days, you should do a cma for all properties (SFR's or condo's) in the subjects neighborhood for the past 4 quarters. (Include this information in the neighborhood market comments). Determine the percentage of decline for properties in the neighborhood and reduce your appraised value accordingly to reflect what it would sell for in the next 60-120 days based on the percentage of decline you are seeing + what contributory value you think the repairs present in the market.

So if your percentages look like this: I would reduce my value on the REO Addendum by 2% because it appears that is the trend the neighborhood has been following.
3rd Qtr 2007 - 2% decline
4th Qtr 2007 - 3% decline
1st Qtr 2008 - 2% decline
2nd Qtr 2008 - 2% decline
7/1/08-9/28/08 - 2% decline

The values based on repairs are not a dollar for dollar adjustment, it says that right on the forum. So just because you estimate $2,500 in repairs, it doesn't mean this is the number you would use. Look at REO properties in the neighborhood and see what kind of discount they sell for if they are sold with or without repairs.

Hope this helped.

 

[BNICK]

do not forget your entrepreneurial profit when the as repaired section is completed, if it costs $2500, no vendor will repair it for $2500 w/o some profit, I use 50% of the repair estimate as E/P so the as repaired comes out to $3750., it may not seem like much in the smaller repairs ,but when you get over $15,000 it makes a large difference

 

[Doug Smith SRA]

30 Day Quick Sale

IMO:

The REO addendum avoids important USPAP issues that require a "fix."

The intended REO form was not intended to be used for a 30-Day Quick Sale value aka "Liquidation Value." Once this requirement is thrown in, the appraiser has to supplement the form with a definition of "Liquidation Value."

Even the 120 and 90 day value is a stretch and following USPAP, another cited defininition should be placed in the REO addendum once the value does not meet the 'reasonable" test found in the definition of market value found in the main body of the report.

The "As Repaired" values require a note on hypothetical conditons to stay within USPAP.


The easiest course is to use the following:

Liquidation Value: from The Dictionary of Real Estate Appraisal, Appraisal Institute, Fourth Edition: The most probable price that a specified interest in real property is likely to bring under all of the following conditions: 1. Consummation of a sale will occur within a severely limited future marketing period specified by the client. 2. The actual market conditions currently prevailing are those to which the appraised property interest is subject. 3. The buyer is acting prudently and knowledgeably. 4. The seller is under an extreme compulsion to sell. 5. The buyer is typically motivated. 6. The buyer is acting in what he or she considers his or her best interest. 7. A limited marketing effort and time will be allowed for the completion of a sale. 8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto. 9. 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.

Doug

Disclaimer:


I am not a USPAP intructor but frequent Holiday Inn Express...

 

[Riick]

........do not forget your entrepreneurial profit when the as repaired section is completed, if it costs $2500, no vendor will repair it for $2500 w/o some profit, I use 50% of the repair estimate as E/P so the as repaired comes out to $3750., it may not seem like much in the smaller repairs, but when you get over $15,000 it makes a large difference

If a Speculator (excuse me, a Developer, errrrrr a potential Homeowner) walks into a home that needs $15,000 worth of work,
is he/she going to be satisified with a entrepreneurial profit of 1/2 of that amount?
$7,500 profit.
Most of these people wouldn't get out of bed at 9AM for a potential $7.5k profit on a house.

 

[BNICK]

that is the profit on the repairs, not the house, duh?