REO Appraisal

[residentialguy]

? Where is the statement for that?
I have not found a definition of "REO value".
Its market value - if there is a limitation of market exposure that might affect the value. Some REO assignments require a Prvalue opinion with a sale under 60 days, for example. That can be often be found on a REO addendum.

Good morning JG

It it is based upon the seller being a lender that has to sell it, t's pretty much a liquidation value. Brings back the good ol days, lol

 

[residentialguy]

That's right. It is market value. Depending on the Client, they may also want Liquidation Value.

yep... they want to know the value of that property with a lender being the seller. It is a forced sale. They can't live in it, they can't rent it, they have to just shell out money to keep it vacant, which adds to the depreciation. They have to sell it, as is. They can't even keep any profit from it.

 

[J Grant]

I've only seen several REO that were left in decent condition. Most are vacant for a couple of years, with different $ problems. And they seem to be beat to hell, or no maintenance.
So, after seeing it beat up how can you use normal comps. When interest rates really went down, REO were selling at non REO prices. But my experience is that the typical REO is not a typical c4 sales. So how much of a depreciation do you take off, especially if needs work. So then to go see, look for the comps, or go back out to take comp photos being FHA, you made minimal pay for your time.

The ones i did after a foreclosure, a realtor was already involved. So, i had a good talk with the realtor who had inspected the property. Would now know the problems and what the listing realtor said the list price should be. Saved me time. Also, there seemed to only be a couple of realtors who handle them. Before it was many realtors. A mort servicing co handling the REO is a different problem.

If your subject is in fair condition due to deferred maintenance, or in worse condition needing repairs, then find comps in similar deferred maintenance condition or comps needing repairs. Some of them might be REO-owned (bank owned ) and some regular owned. We normally do not pick comps according to who owns them. However, if you notice a price difference between REO-owned sales and non REO owned sales, call the RE agents; it could be seller motivation.

The more recent trend is for lenders to get a good price as they can and not sell in a rush for a low price; any situation can be different. Post-crash back in the day, there were a lot of REO sales to use as comps. There may be far fewer now, but again, it depends - if you see a lot of REO sales that is a sign of market issues.

 

[J Grant]

yep... they want to know the value of that property with a lender being the seller. It is a forced sale. They can't live in it, they can't rent it, they have to just shell out money to keep it vacant, which adds to the depreciation. They have to sell it, as is. They can't even keep any profit from it.

, lol Groundhog Day! Did we just get into a time machine and we are back in 2010? ( miss those days)

The same debate we used to have - unless the client TELLS you they want liquidation value, then give them the market value they ask for. Please don't assume they want to dump it fast for a low price. I saw that after selling properies way too low in many cases, lenders wised up and started telling RE agents (it would be on the listing ) no investor buyer contracts until the property was on the market for 30 days ( or 60 days in some cases ) and the RE agents also instructed to get multiple offers and submit them so the bank could take the highest one.

True, the bank does not want it listed forever ( but neither do most owners ). But by the time the property is listed for sale, the bank has already owned it 8 months or a year or more (since an eviction and deed to bank etc, can take time ) So what is a few more months to market the property at that point worth? Are they going to dump it for 150k to sell in a week, when they can keep it on the market for two months and get 170k? The banks want to sell, but they also do not want to take losses.

The other thing is as we know, many REO appraisals ask for a market value opinion ( with reasonable market time exposure) and a second value opinion of a sale in 60 days ( or 30 days,) the client sets the DOM time they want to see. They still do not ask for a second liquidation value opinion ( typically), they ask for a second MV opinion with a restricted market exposure ( typically )

 

[J Grant]

yep... they want to know the value of that property with a lender being the seller. It is a forced sale. They can't live in it, they can't rent it, they have to just shell out money to keep it vacant, which adds to the depreciation. They have to sell it, as is. They can't even keep any profit from it.

They can't keep any profit on it, but idk if any profit can pay their legal fees and expenses from the sale before returning any overage in price to the original owner.

They can, however, take a loss, which they would rather avoid if possible. Some truly awful run-down properties they might want to dump fast for a loss but an avg condition livable property, most likely they would prefer not to take a loss.

 

[residentialguy]

, lol Groundhog Day! Did we just get into a time machine and we are back in 2010? ( miss those days)

The sam"e debate we used to have - unless the client TELLS you they want liquidation value, then give them the market value they ask for. Please don't assume they want to dump it fast for a low price. I saw that after selling properies way too low in many cases, lenders wised up and started telling RE agents (it would be on the listing ) no investor buyer contracts until the property was on the market for 30 days ( or 60 days in some cases ) and the RE agents also instructed to get multiple offers and submit them so the bank could take the highest one.

True, the bank does not want it listed forever ( but neither do most owners ). But by the time the property is listed for sale, the bank has already owned it 8 months or a year or more (since an eviction and deed to bank etc, can take time ) So what is a few more months to market the property at that point worth? Are they going to dump it for 150k to sell in a week, when they can keep it on the market for two months and get 170k? The banks want to sell, but they also do not want to take losses.

The other thing is as we know, many REO appraisals ask for a market value opinion ( with reasonable market time exposure) and a second value opinion of a sale in 60 days ( or 30 days,) the client sets the DOM time they want to see. They still do not ask for a second liquidation value opinion ( typically), they ask for a second MV opinion with a restricted market exposure ( typically )

Appraisers are the professionals when it comes to appraisals. They can't assume that the manager that ordered the appraisal knows the difference between MV and LV. USPAP commands the appraiser to be vigilant in making sure that the client is on the same page in the SOW. So you contact them and ask what the purpose is of the appraisal...how is it being used? It is for listing purposes for the bank to get it off their books? You might get, "I just want to know what it's worth...why would it be different if the seller were a bank?".... ahhhh, glad you asked, Mr lender. Here is the difference and the effect it can have on the sale. It could be that they really want market value and they have a process already in place to adjust the appraisal's mv. Cool, MV it is.

They REO addendum isn't worth the price of the paper. (or the data space it took up). It should be printed on toilet paper. MV is a distinct defined term. You can't change it. If you do, it is NO LONGER MARKET VALUE. Their own URAR even says that MV can not be changed. They are 2 different appraisals. (actually 3)

 

[Dale Floyd]

Liquidation value has been around longer than FIRREA. It’s not the same as market value, and has been sought by lenders looking to get rid of collateral being held after losses are written off, or for audit needs if REO collateral is being held longer than normal. Short sales, deed in lieu of foreclosure purposes, end of the year loss audits, REO portfolio valuation, etc. Surely every appraiser knows that.

I’m unsure of some of the points trying to be made out here.

 

[J Grant]

Appraisers are the professionals when it comes to appraisals. They can't assume that the manager that ordered the appraisal knows the difference between MV and LV. USPAP commands the appraiser to be vigilant in making sure that the client is on the same page in the SOW. So you contact them and ask what the purpose is of the appraisal...how is it being used? It is for listing purposes for the bank to get it off their books? You might get, "I just want to know what it's worth...why would it be different if the seller were a bank?".... ahhhh, glad you asked, Mr lender. Here is the difference and the effect it can have on the sale. It could be that they really want market value and they have a process already in place to adjust the appraisal's mv. Cool, MV it is.

They REO addendum isn't worth the price of the paper. (or the data space it took up). It should be printed on toilet paper. MV is a distinct defined term. You can't change it. If you do, it is NO LONGER MARKET VALUE. Their own URAR even says that MV can not be changed. They are 2 different appraisals. (actually 3)

I assume a manager at a bank darn wells knows the difference between MV and LV - maybe an underling doesn't, but a manager would, esp a manager of their REO division that likely originates these orders.

If an appraiser feels unsure, they can ask their client; however, I think that gets problematic, though- an appraiser grilling a lender client about what they want to use the appraisal for ? Why is that any of our business? An opinion of MV is an opinion of MV; what the client does with it later is up to them. Imo, asking the client this question is problematic because the division that handles their REOs wants MV, but a person answering our questions might be a low-level informed person (including a loan officer ), and they can be confused by the question. (and thus give a vague or incorrect answer).

If the appraiser gives a value based on a different definition of value, such as Liquidation Value, then LV value definition must be stated on the appraisal.)

I agree, they might order MV and the bank has an internal process to adjust it for their own purpose. Imo, they could want to know the MV to see what offers to accept or reject, or whether an agent's list price is trying to undersell it, or if the listing agent is asking too high a price to be realistic.

 

[Sadie]

? Where is the statement for that?
I have not found a definition of "REO value".
Its market value - if there is a limitation of market exposure that might affect the value. Some REO assignments require a second value opinion with a sale under 60 days, for example. That can be often be found on a REO addendum.

Usually the client defines what they term REO value. Because, yeah its not a real thing.

 

[residentialguy]

If an appraiser feels unsure, they can ask their client; however, I think that gets problematic, though- an appraiser grilling a lender client about what they want to use the appraisal for ? Why is that any of our business? An opinion of MV is an opinion of MV; what the client does with it later is up to them. Imo, asking the client this question is problematic because the division that handles their REOs wants MV, but a person answering our questions might be a low-level informed person (including a loan officer ), and they can be confused by the question. (and thus give a vague or incorrect answer).

I'm surprised that you wrote this.

PROBLEM IDENTIFICATION
An appraiser must gather and analyze information about those assignment elements that are necessary to properly identify the appraisal or appraisal review problem to be solved. Comment: The assignment elements necessary for problem identification are addressed in the applicable Standards Rules (i.e., SR 1-2, SR 3-2, SR 5-2, SR 7-2, and SR 9-2). In an appraisal assignment, for example, identification of the problem to be solved requires the appraiser to identify the following assignment elements:• client and any other intended users;• intended use of the appraiser’s opinions and conclusions;• type and definition of value;• effective date of the appraiser’s opinions and conclusions;• subject of the assignment and its relevant characteristics; and• assignment conditions.

STANDARDS RULE 1-2, PROBLEM IDENTIFICATION In developing a real property appraisal, an appraiser must:...18(b) identify the intended use of the appraiser’s opinions and conclusions;

So yes, USPAP demands that you find out what the appraisal is going to be used for.