REO Comps or non-REO comps

[Mile High Trout]

Any of you run into 100% foreclosures, yet? Just curious.

Thanks to all!

There is some irresponsible builder financing for you.

Have not run into those high % numbers. There are some areas in CO, N of 104th & Chambers where adjustable rate builder financing was prevalent. Ongoing reductions in prices are substantial in the entire area. One gated community of high end super quality patio homes still has the majority of homes unsold, with a few distress sales. Not to mention the 1/2 of the smaller area that never had homes developed on the lots in the first place. "Roads to nowhere".

One listor sat on the market for 1/2 year or more at $460k, before selling at an unbelievable drop to under $300k. Never made one listing price adjustment. It's just sad but true.

 

[Mile High Trout]

Market Value is defined as:
.....

• Buyer and seller are typically motivated;
• Both parties are well informed or well advised, and each acting in what they consider their best interests;

If the majority of listing sellers are typically motivated by distress, and well informed buyers and sellers understand liquidation value is the going price... Also considering a well advised owner may very well want to drop off that property with adjustable rate... If negative stigma is the norm, is it stigma anymore?

Any thoughts? Great point Mountain.

 

[Mike Garrett RAA]

Have seen complete townhome projects bank owned.

 

[CANative]

Boyd, Californians are crazy to pay that for cracker boxes.

If the choice is pay too much here or move to Texas... I'm just saying.

 

[Ken Tamblyn]

If the choice is pay too much here or move to Texas... I'm just saying.

Oklahoma also has some smokin' deals

 

[Mo Ashraf]

The basic premise of appraising! A property is worth what someone will pay for it. Lets just suppose there were two identical houses, one being offered by an owner for, say, $200,000 and the other being offered by a bank (REO) for $180,000. If everything was the same...which one would you buy? If you say the one for $180,000, then you have just established a comparable.

Granted, most of the time, the REO will probably be in somewhat inferior condition. In fact, it might be in substantially inferior condition, but that could easily be adjusted for in the appraisal.

Failure to use REO properties, if they are present in your market, is...in my opinion, failure to recognize THE MARKET and that could and probably would cause your appraisal to be not credible and your subsequent appraisal report to be mis-leading.

Appraisers do not set value. We interpret THE MARKET. The market is the actions of buyers and sellers. Granted there are other caveats in the definition but, the above is basis. Something is worth what a buyer will pay and most reasonable buyers will look to the lower priced properties as a suitable substitute, especially in today's market.

IN MY MARKET, REOs are the market in many areas. Like it or not, until those properties are absorbed they will continue to influence values and appraisals.

Mike,
Excellent Comments. This is the best I found in the whole thread.

Ash

 

[Lee Lansford]

I've got both, there's just as many of each, the houses are similar enough in location, size and condition, and marketing time spread is 19 days to 102 days mixed between REO and non-REO.

Yet there is a $100,000+ spread (at the $210 - $307).

What the heck?! Why is everything such a freaking hassel. I'm sick of appraising.

Sorry if what I offer has previously been asked and answered in this string, but...

If you're appraising the subject for Market Value, it appears (from the limited info that you offer) that the market differentiates between REO and non-REO. If the market makes the distinction between the two, it's up to the appraiser to recognize what the market is telling him/her.

 

[Lee Lansford]

If you are appraising an REO property, then the REO sales will reflect the market for that property and the stigma attributed to these type sales. If you are appraising an arms length transaction and you really have a market of non-REO sales, then those sales would best reflect the market of typical arms length home sales with no repairs, stigma or market reaction.

Let's reflect upon this. In each instance, what is the "value" definition that the appraiser is working with?

First, I believe that you meant to use the term (or, similar) "non-distress", or, "no undue stimulus" where you state "arms length transaction".

Second, when we appraise for Market Value (let's use the definition as found in a Fannie form), there's that little directive regarding "...assuming the price is not affected by undue stimulus."

I think that many appraisers are overlooking "undue stimulus" when struggling with an opinion of Market Value based upon the conditions of sale of the subject property...or, is it a different definition of "value"?

The MV (as defined) of two "identical" properties, one an REO and the other not, should be identical.

NOW, if you are appraising for a definition of value that is different than MV, the resulting opinions of "value" might be different. Or, does "undue stimulus" have no meaning?

 

[Lee Lansford]

...

Failure to use REO properties, if they are present in your market, is...in my opinion, failure to recognize THE MARKET and that could and probably would cause your appraisal to be not credible and your subsequent appraisal report to be mis-leading.
...
.

If the market differentiates (as to prices paid) between REO and non-REO properties, the appraiser, when offering an opinion of MV (and, bearing in mind the directive about "no undue stimulus") has to recognize this distinction.

In most areas where I appraise, REOs are to be found. More frequently than not, the REO property will sell for a price less than the other similar property where "no undue stimulus" is to be found. Thus, the mere presence of REO properties does not mean that such constitute "the market".

 

[CANative]

Let's play around with this a bit.

Say I finish this REO and the value opinion is at the bottom of the range because it's an REO. $210,000.

The next morning the client calls back and says they've made a mistake in their order form and this property is just a refinance.

Do I have to change the comps and my value opinion?