REO Comp Question

[ennazec08]

Hi everyone!

Quick question - I am doing an REO appraisal in a rural market and have a comp that is perfect that I feel should be utilized that sold REO for 60k. It was flipped and resold 6 months later for $225k. My question is - is it still appropriate for me to use the REO comp within my report with verbiage that it was flipped and transferred after? I asked the mentor I used to work with and she told me absolutely not to use the comp at all, but I am not sure why I can't if I disclose the other sale after the fact in detail. Does anyone have any guidance or advice on this? Thanks!

 

[Mr Rex]

Absolutely use it to help illustrate REO stigma as well as the later sale to illustrate the "As Repaired" potential value.

 

[hastalavista]

It sounds like the $60k REO was a significant fixer. Is your subject a significant fixer? If so, it would appear to be one of if not the best comparable. If not, wouldn't consider it similar. Unless you can extract an REO reaction to the $60k fixer vs. some other property that is similar in condition and didn't sale as a fixer (in my market, there would be no difference).

You have two things to consider: Transactional status (REO vs. non-REO, sometimes referred to as an equity-sale) and condition of the property. Matching a REO status/fixer with an REO/non-fixer is not an easy and may not provide meaningful, analysis.

Good luck!

 

[CindyR]

absolutely you can use it and if you think it is a perfect comp then absolutely you should use it. and if you think it is relevant you can use both of its sales (although if you are only going to have 3 comps then i would not use the same property as two of them)

 

[Michigan CG]

I asked the mentor I used to work with and she told me absolutely not to use the comp at all,

I would quit calling that mentor for advice.

 

[hastalavista]

I would quit calling that mentor for advice.

Maybe. But if I took the call and the appraiser told me he was considering using a significant fixer for a non-fixer, and the only similarity was the REO status, I might give similar advice about not using it as a comparable (if that is the only REO, discuss it in the report).

 

[Dublin ohio]

What was your mentor's reasoning for not using it?

 

[DWiley]

Two questions: Are you appraising the market value of the subject or some other type of value (e.g. liquidation value)? Is there a bifurcated market where REO and other properties compose two unique segments?

For many, they default to "well, if the subject is REO then the comps should be REO" and that is NOT a good guideline.

 

[ennazec08]

Maybe. But if I took the call and the appraiser told me he was considering using a significant fixer for a non-fixer, and the only similarity was the REO status, I might give similar advice about not using it as a comparable (if that is the only REO, discuss it in the report).

They are basically the same property condition wise. I called the agent to confirm (pre flip). Her reasoning of why I shouldn’t use it was that it sold afterwards. That was the only reason. But I felt that if I made appropriate commentary that shouldn’t matter.

 

[Carnivore]

Absolutely use it to help illustrate REO stigma as well as the later sale to illustrate the "As Repaired" potential value.

That's what I am thinking... Good Golly this is a great example of what you should do. I assume your assignment is for a 1004 REO with an as-is and as-repaired. If this comparable lets say for discussion is just like your Subject. BOOM! After you repair your subject again Boom. The difference might be in what the market expectation is for a repaired REO home. In other words what they did to repair the comparable and is that pretty much what the market would do, AKA Investor to rehab and resale for profit. Look for something major in the repair that would be out of the ordinary.

Lets say this is all true. The task is to find out what was done to the resale. From there you have some data to work with. Wish I had this situation about two weeks ago something like you have now. Sure would have made my assignment a lot easier.