REO sales and "Market Value"

[residentialguy]

Mr Know it all Res Guy gets his butt handed to him again.

Speaking out your's again, huh? Helps to read my posts before you post

 

[moh malekpour]

In my 20 years, I have never encountered the REO Appraisal Addendum from a bank. But then again, I work for local BANKS...not national secondary market feeder banks and mortgage lenders.

BANKS...local ... need only to determine the value to place on their books which makes the examiners very happy....no appraisal and they get very saddd.... The Credit Dept or whatever its called "Special Assets" will work out the asking price with a Realtor. That Realtor may advise them to drop the price to get a quicker sale. Or they may be so upside down in it, they hold out for a higher price. I've not found many that sold for more than what I appraised them for, in fact, cannot think of but one. And since the last 4 folks have went under on that property (a chicken farm) I really expect no better fate for this guy unless he is smart enough to get it back into production then flip it right quick. I have seen them sell one we appraised for $24,000 for $19,000 to the man who lived there. He was an old preacher and had the cash...was just easier for him to buy it than to move. Sold in 10 days of when we appraised it. They were happy to sell it sans commissions and get it done fast.

Unless major banks, distance banks, Fannie Mae, HUD, VA or any other institution with REO properties in their inventory have changed their policies regarding their REO Appraisal policy assignment, they usually require that the Supplemental REO Appraisal Addendum be included in their REO appraisal report. I am sure many appraisers in this forum are doing or have done REO appraisals for one of those institutions either directly or through AMC. I would like to know if anyone had an REO order from those institutions that didn’t require Supplemental REO Appraisal Addendum.
This form has been around for the last 15-20 years and is included in all appraisal softwares and is common for REO Appraisals.
One of the main reasons for requiring this addendum is that those institutions are not local and have no idea about the condition and location and the market condition and the market value of their REO property and since they have to sell that property, they need to get an objective information about market value of the property before they decide how to list that property with a local broker. They have a need and urgency to sell their REO property but they don’t want to give it away for free because the listing broker says so.

 

[residentialguy]

I'm doing one right now were I am putting it on a land form since it's HBU is razed. The scope of work does not include opining Market Value, as defined by FNMA. They want a 90 day disposition value and 30 day Liquidation value. These value types both have the seller as a lender being under high compulsion to sell.

 

[J Grant]

As long as client directed a 90 day disposition value and it is stated as purpose of the appraisal (not MV stated as purpose of appraisal), then you are good to go.

Every REO as subject I have done for lenders had MV as purpose of the appraisal, and had the REO addendum attached, which asks for an as repaired value (if there are repairs), and a secondary MV opinion in a 90 day or 60 day exposure DOM time (Though I've had clients ask for 120 days and 30 days)

 

[residentialguy]

When it comes to a REO addendum, I would personally contact the lender to clarify MV. Why? What are they using that value for? They are probably going to be selling it as a REO. They may say give me MV as defined, we'll adjust for the market reaction for it being a REO. Which is fine. State that understanding in the report so they can't come back to you when they can't sell it at MV.

 

[J Grant]

Ridiculous. I have done several hundred REO as subject over the years, and know other appraisers who do as well..nobody calls the lender to "clarify" MV.

MV is well defined and it is on the cert. The REO addendum has a shorter market exposure time, 30-90 days typically. That is where the appraiser can discount the price down to sell within that time frame , though it's discounted off a MV price.

The lender may be also getting BPO's, or a price opinion from the listing realtor. They can list price it wherever they want, I provide the MV as purpose of report. If an REO is in bad shape, naturally it will appraise lower due to condition.

 

[residentialguy]

Well, you don't have to. I'd rather have it clarified. You know what it is being used for - so they can put it on the market; and you give them MV, knowing that they can't sell it for that...I think it smacks of a law suit waiting to happen. I'd rather CMA.

If you don't clarify it with the lender, I would at least clarify it on the report that the subject selling as a distressed sale may fall into a lower value range. You don't have to...just friendly advice. Appraisers are being thrown under the bus from every side.

 

[J Grant]

Res Guy, the way you and I arrive at MV varies to a degree...I don't automatically adjust every REO sale up, for example. The methods for arriving at MV is no different for REO as subject than for a private owner home as subject (which is how it is supposed to be, on a MV purpose appraisal).

You apply very different standards to treating REO's as comps...which makes you feel a need to call the lender...I appreciate your friendly advice though!

I hope none of us end up under the bus ...not a very secure time to be appraising, that's for sure.

 

[JSmith43]

Ridiculous. I have done several hundred REO as subject over the years, and know other appraisers who do as well..nobody calls the lender to "clarify" MV.

MV is well defined and it is on the cert. The REO addendum has a shorter market exposure time, 30-90 days typically. That is where the appraiser can discount the price down to sell within that time frame , though it's discounted off a MV price.

The lender may be also getting BPO's, or a price opinion from the listing realtor. They can list price it wherever they want, I provide the MV as purpose of report. If an REO is in bad shape, naturally it will appraise lower due to condition.

Which post are you labeling as "ridiculous"? If a client asks for a value constrained in time to 10 days, is it still MV? See the point?

Nothing personal, Jgrant. I hope the following comments help explain what a trap a REO addendum is for the typical appraiser. It doesn't matter how many REO appraisals you have done wrong without consequences (so far), the fact is that the client time constraint imposed by the client could only by chance, result in a MV conclusion, if the request was properly incorporated.

Safety in numbers? Not while marching over hot coals at an Anthony Robbins seminar:icon_mrgreen: The trick is to not be the first one (you need a tester to see if enough insulating ash has formed) and not be toward the back of the pack, lest someone's sweaty feet remove too much ash before your turn).

The part that you think is ridiculous, hopefully, is the notion that there can be meaningful dialog between an appraiser and client at the decision making level for that lending client. I agree with you there

A REO addendum with multiple values based upon market times different from what the MV market time is for the subject under the conditions set forth in the MV definition, the appraiser ends up opining a value other than MV but fails to define that value and state the source of the definition per USPAP.

The fact that this is regularly muffed by many appraisers should not give you comfort.

 

[JSmith43]

ResGuy's advise to clarify is good advice.

Here is a way to handle it if the time constraint request is significantly different than the marketing time you would estimate for the subject without the client's restraint.

Reference a value definition that you consider to be most fitting given the instructions for that particular value estimate. Include the definition & the source in your report & incorporate it. Tell them what you are doing and why.

I've had to do this plenty of times for REO assignments. I never hear a peep, which means......nothing.