REO Comp Question

[Carnivore]

So I don't know precisely what your assignment instructions are and what type of Value your client wants/desires in the report. So this below is like the typical REO assignment I complete using your comments.

Again typically a REO assignment would involve determining two Market Values; AS-IS and AS-REPAIRED. Sometimes a client only wants AS-IS. Additionally the vast majority of the REO's are Lender owned or about to be lender owned. Sometimes the AS-IS and AS-REPAIRED are the same. What I have read in some comments is something about a REO Stigma. Hmmm...I am not sure that actually exist all the time. Sometimes a neighborhood is stigmatized by a large number of REO's in one neighborhood. IMO one REO in a neighborhood is not a significant factor. REO's happen... I have observed in the Charlotte MSA that FHA seems to fire sale all their REO's. My observation is not anecdotal, but more of a pattern. I don't have empirical data on that statement.

In the original post it was stated that a comparable was sold as a REO for X and the Sold Later for a much higher X. I presume this was within lets say a year or less time period. The OP also described REO/Market Sale was a great comparable. I assumed she meant as a REO Comp. OK, I will take that as fact. So the first question that came to mind; Why wouldn't you use that as a Comp? Especially if physical conditions were very similar for subject/comparable. Communications with the Realtor(s) involved in this sale is critical. I want to know everything I can about the as-is condition. If the same Realtor was involved in the AS-Repaired sale, Whoopee I have hit the Appraiser Lottery. Why because I am trying to determine the Following of the Repaired Sale; 1. Acquisition Cost(we know this already), 2 Repair cost 3. Holding Cost 4. Sales Cost and finally 5. Profit. Again the Realtor is Key to a successful and credible Appraisal Report. The Realtor(s) can also be very helpful for both sale of this Comparable; i.e. AS-IS - Were there multiple offers. Was there any type of property inspection completed before and after(I want it if I can get it)

After all that you now have AS-IS and AS-Repaired market value that you can weight in your final reconciliation. Something to hang your hat on with that one address/comparable.

So we still are going to need at least two more sales and if your smart at least three active/contracted comparable. Maybe the OP will get lucky and find a active listing that is a REO as-is or as-repaired or both. Maybe it will be a mix. What I think the OP should do is not worry about distance, date of sale etc. Its Rural, UW's, AMC etc need to get over it, That's Rural Appraising. Your not going to be that lucky to meet a silly lender requirement of one mile, 6 months sale date etc etc blah blah blah.

So it all sounds simple, but its not by a long shot. They are never easy.

Side Note: Since it was stated that this assignment is Rural, then sales typically will be in short supply and your probably going to have a 100-150 miles of distance expense(drive time). What comparable you have may be widely different. You might have to use some crazy comps. Here is a suggestion that might make your life a little easier on this assignment. Go back in time for comparable. Way back if needed. Its much easier to develop a time adjustment on a Good Comp than it is to extract data needed for a more recent comp that has large/numerous physical differences. Such is the life of a Rural assignment and worse as a Rural REO.

I am done babbling. If I have said something above that you don't agree with then go ahead and blast me and be gentle tell me where I am wrong or better yet tell me how YOU would do it. I got thick skin and still learning.

I wish the OP good luck and encourage her to keep pounding.

 

[J Grant]

Let's clear that question up so we're on the same page.
@ennazec08
Are you doing an appraisal for lending purposes for someone buying REO property? Or are you doing an appraisal for a bank for one of their REO properties? The intended use might be so they know what price they should list the house at, for example. This type of order typically requires the use of a REO addendum.

Not if the lender/client of an REO wants market value !! And you can not change the pre printed certs mv definition on a 1004 form ( typically lenders want the 1004 form with an REO addendum ) If they order appraisal on a 1004 form that says on top : Purpose: market value: , and you give them a different value you "think" they need, such as price to list the house for, or disposition value, you are providing a misleading report.

Carnivore described how to do a lender owned REO with 1004 form and REO addendum .

BTW, banks are more well informed than most on this topic since over the years they have ordered tens of thousands of REO appraisals. They know what market value is , what the second opinion of market value in a more limited exposure is, and they may also be asking a RE agent for their input on what to price the property at so they can compare the two. They are not asking you to play RE agent and tell them what to price the property at ( unless the assignment says purpose, develop an opinion for listing price purpose)

 

[DWiley]

BTW, banks are more well informed than most on this topic since over the years they have ordered tens of thousands of REO appraisals. They know what market value is , what the second opinion of market value in a more limited exposure is, and they may also be asking a RE agent for their input on what to price the property at so they can compare the two. They are not asking you to play RE agent and tell them what to price the property at ( unless the assignment says purpose, develop an opinion for listing price purpose)

I agree. The Compliance Department at one large lender has sent many letters of inquiry on REO assignments where they asked for Market Value and the appraiser simply chose REO comps because the subject was an REO. There are a LOT of misconceptions about REO work, starting with the fact that a large percentage don't really know what "arms length" means

 

[Carnivore]

I agree. The Compliance Department at one large lender has sent many letters of inquiry on REO assignments where they asked for Market Value and the appraiser simply chose REO comps because the subject was an REO. There are a LOT of misconceptions about REO work, starting with the fact that a large percentage don't really know what "arms length" means

Hope you don't mind Danny but I am going to add in another assignment that seems to have some appraisers confused. Appraisal assignment of a Short Sale. I know of many who are using Short Sale sales as comparable for a Short sale assignment. eyecrazy - The mysterious world of a Lender Short sale department makes no sense to the average appraiser and it shouldn't. I have not and never(almost never caveat) will use a short sale MLS listing as a comparable for a short sale assignment. I wont use any short sale for any assignment. There is one exception and it doesn't need to even be brought up but I will anyway, on why you might possibly use one(1) and only one as a comp. That is when there literally are no other comparable to be used. That's pretty rare, because we can always go back in time to find another comparable sale or if need be expand into a different market segment. Some will try and argue, but I am not getting into that mud hole.

 

[J Grant]

Agree .I am far more leery of using short sales as a comp than I would be an REO sale, though there are occasions when for lack of other viable comps or where a short sale sold for within prevalent price range I will use one.

Again, lenders are not idiots and they realize they may have to sell a short sale for less than market value, however, they still want to know what market value is, and it is possible they may use the difference between the two to claim losses .Also, the sale price may be below MV, but the lender may work out a term repayment deal with seller or buyer to pay arrears in addition to sale price.

How can a lender decide whether to accept an offer below market value, if they don't even know what market value $ amount is?

 

[Lee Lansford]

As most in this string have rightfully pointed-out, it is unfortunate that way too many appraisers are hard-wired to NOT give thought to solving the actual--vs. what they think it is--problem that has been presented to them.

 

[TRESinc]

***Now, if the bank orders an appraisal on one of their properties that they own and wants to know the market value for the most probable price that they (the bank) could sell it for (under their situation as a REO sale where there is additional stimulus to sell), then that changes the value conditions and you wouldn't use Market Value, as defined on the 1004. They don't want market value, they want more of a disposition value or liquidation value where you would compare similar REOs that are in the same position. This is where the bank often screws up the order thinking that Market value on the form represents what their sale would reflect and FNMA's definition of Market Value wouldn't give them what they need.

can't say i have ever experienced what you posted (bolded). on the REO orders I have done for my clients, non-sale reports, they ask for market and liquidation (90 day listing period) values. i can't see too many banks screwing this up. it's a pretty basic principle they deal with on a daily basis.

ymmv...

 

[residentialguy]

can't say i have ever experienced what you posted (bolded). on the REO orders I have done for my clients, non-sale reports, they ask for market and liquidation (90 day listing period) values. i can't see too many banks screwing this up. it's a pretty basic principle they deal with on a daily basis..

I have. They specifically wanted to list the the property and upon verification, they wanted liquidation value, not market value. I wouldn't just forge ahead with liquidation value on an order asking for market value, however...and I don't want to give OP that idea. None of us know what OP's order was for...they went dark

btw, I would never do the REO addendum. Extremely misleading, IMO.

 

[residentialguy]

Not if the lender/client of an REO wants market value !! And you can not change the pre printed certs mv definition on a 1004 form ( typically lenders want the 1004 form with an REO addendum ) If they order appraisal on a 1004 form that says on top : Purpose: market value: , and you give them a different value you "think" they need, such as price to list the house for, or disposition value, you are providing a misleading report.

I agree. I never stated that I would go against any order.

They are not asking you to play RE agent and tell them what to price the property at ( unless the assignment says purpose, develop an opinion for listing price purpose)

I don't know that, and neither do you. That's why I follow USPAP and communicate with the lender to make sure that my order is correct and my report is done in a way that is meaningful to them. If they want market value of the property where it is a hypothetical situation of not being owned by a bank, I'll give them market value. But if they want an REO type of value to know what it's worth in their hands, then market value is not applicable.

 

[Tom4value]

I think your instincts are good and you can use this. I would. Just explain the later sale.

To avoid a call back, I would not use it as one of my 1st 3 comps but would definitely use it as a 4th comp to bolster your discussion of the market for REOs as I would imagine that the later sale was after renovation