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REO confusion

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Renee Borne

Thread Starter
Junior Member
Joined
Jan 5, 2005
Professional Status
Licensed Appraiser
State
Arizona
Getting it from all ends and no one has a good answer.

Doing a property that is in an exclusive area. Water views, etc. Have 1 comp that has similar view, comp 2 has a view but less similar, same as 3 but three was an REO on the next block over, closed a month ago. Called the agent and agent told me that it sold below market because the bank wanted to unload. It had normal market exposure but it sold $85k below market. If I make an adjustment for it being an REO is that reasonable? How would I explain it. I would mention that I spoke to agent, market conditions, etc. Should I just throw it out since most sales are not REOs. Should I throw out but mention that I had a comp at zzz but it was an REO and that is why I did not use. If I do use does anyone have a good blurb I could use.

Thanks
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Your task is to find the most comparable sales in the market when completing the sales comparison approach. If your subject is an REO property then it would be appropriate to use one, two, or maybe three REO sales; if your property is not an REO property then it's best not to use it. If forced to use it I'd check with the REALTOR, the bank (former owner) AND the buyer. Find out what each party has to say about the sale. It may have been REO but if it had typical marketing time maybe it would be considered a good sale. If it sold $85k below (what's market?) maybe it sold at the new market????


If at all possible don't mix in REO property with typical arms length transactions there is just too much you don't know about them.
 

Kevin Keck

Junior Member
Joined
Jun 2, 2006
Professional Status
Certified Residential Appraiser
State
Ohio
Your task is to find the most comparable sales in the market when completing the sales comparison approach. If your subject is an REO property then it would be appropriate to use one, two, or maybe three REO sales.

Why is it appropriate to use REO sales if the subject is an REO sale? Shouldn't you utilize arms-length sales that are similar to the subject in condition, physical attributes, and location?
 

stefan olafson

Senior Member
Joined
Apr 2, 2003
Professional Status
Certified General Appraiser
State
North Dakota
Kevin,

Most lenders with REO property want you as the appraiser to compare like properties to their REO property. There is a tarnish (right or wrong) on property that has gone through foreclosure and the lender recognizes that and so should the appraiser.

Knowledgable buyers will discount an REO property 'just because' they know there is a possibility their offer will be accepted, just to get their property off the books.

It's typical, but not always true, that REO property has been diminished in some way, up here in cold country it's common for houses to be abandondoned and not heated, thus the water lines freeze, which causes all kinds of problems when they are re-heated.

A few of the many reasons.
 

panappr

Elite Member
Joined
Dec 5, 2007
Professional Status
Certified Residential Appraiser
State
California
Why is it appropriate to use REO sales if the subject is an REO sale? Shouldn't you utilize arms-length sales that are similar to the subject in condition, physical attributes, and location?

I agree, a lender needs to know what the most probable selling price or market value of the property is in the normal market place. REO's seem to be creating a sub-market of liquidation sales in some areas, which has to be addressed in the appraisal. However, if there are only REO sales to contend with, then that is the market.

In LA I think allot of people are getting short changed by the banks. In some areas I think banks are knowingly bringing down values in neighborhoods, to cut there loses on properties which would normally sell allot closer to current normal market pricing, given ample time. The buyers seem to be out there. Things aren't selling overnight anymore, its back to 60-120 days on market, and the banks just aren't willing to deal with that. If the government is willing to let the banks write-off their loses, then what do they care, dump it.

Just 2 cents
 
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