DMZwerg
Senior Member
- Joined
- Mar 25, 2009
- Professional Status
- Certified Residential Appraiser
- State
- Wisconsin
You missed "4- Due to limited market time."An REO property can become a distressed sale in the following situations:
1- The property is located in a deteriorated location where a vacant home can be easily vandalized.
2- The property condition is deteriorated. A bad condition begets more bad condition. a leaky roof or broken plumbing can destroy a vacan home overnight.
3- Market value in the neighborhood is declining. The owner of the REO, the bank, doesn't have the luxury of rgular homeowner to wait for a long time or take the property off the market if it is not sold at the market value. It takes the bank 1-2 years to capture the property from the notice of default, default, foreclosure and finally to REO that legally can list and sell it.
The only case an OREO can be anything other than a distressed sale is when they own the property with the intended use and continued use of their employees (such as a residential unit as the residence of the branch manager or the like, or the bank or office building out of which the bank is running the business) and thus have no restriction as to holding said property.
The bank does not collect loan payments for 2 years <snip> When the bank has possessed that property legally, waiting too long for sell it at a desirabl market value is not wise because more wait, more loss for the bank.
Actually, they could be down to only 1 year to sell at that point, possibly less if they have insufficient cash reserves and too much such held property, as determined by The Regulators.
The interested buyers in these properties are usually investors who are looking for a deall and expect to get lower than market value. Banks and agents know it and list the property accordingly.
Which is the point the property may cross from Disposition Value to Liquidation Value (aka, extreme compulsion to sell and very limited marketing / time frame). Default is Disposition with OREOs, but a foreclosure auction is technically Liquidation (but is not typically applicable to appraiser valuations).
An REO property can be a non distressed sale and be sold at the market value or very close to market value at the following situations:
1- The property is located in a safe and secure location where no body touches the property no matter how long it remains vacant.
2- The property is in a good condition and it is atracted to typical homebuyers.
3- The property values are increasing or at least are not declining
4- There are limited REO or short sales listings in the market. Less than 20% to 30%
Incorrect on 1, 2, 3 and 4.
Point 2 would seem obvious and correct but for the fact that the marketing time is shortened *AND* the bank HAS TO SELL based on federal law. Note, not just one but both as the bank can not leave it on the market indefinitely.
The only case I know of where what in all other respects should be considered an OREO is with HomePath properties, which seemed to sell at market in some neighborhoods. This confused me at first until I read about the new directives that Fannie and Freddie will, in the future, NOT be allowed to hold properties indefinitely. Then things clicked in "the little grey cells" ... I had noticed a difference in some local markets in regards to HomePath but given the definition of OREOs it did not quite make sense but now that I know Fannie had, at the time, no restriction on marketing time, the reason they were selling closer to market became clear.
If REO sales in a market represent more than 75% of all sales in that market, then they are going to be dominant sales in that market and an appraiser in that market may have to use some of them as comps. If 50% of those 75% REO sales in the market compete with the 25% of regular sales in conditions and locations, then the appraiser should choose them as comparable sales and there are ways to identify them.
Um, no.
I have appraised in a market where over 95% of the sales were OREOs, short sales and other distressed sales and I could still detect a significant and easily measurable difference in the market. Sure that means that the appraiser may have to include some, and they may have some influence on the non-OREO sales, but that does not mean I have to "choose" them, merely that I need to ADDRESS them (mention, consider, and so forth, not mandated to use). mandating that an appraiser use them is as wrong as mandating that he can not use them. It is possible to use them and still opinion Market Value rather than Disposition Value or Liquidation Value, but that involves proper analysis and adjustment. I believe I mentioned one way in my previous post.
Usually agents don't mention adverse conditions of REO properties and never put any interior photos of damaged area of REO listing in MLS but are very eager to explain about the good conditions and put interior phots of every thing in MLS.
Look at listings in general from 5+ years ago and see how few contained interior photos. Didn't matter if they were OREOs or not, in many markets RE Agents just plain didn't include many photos as that was not standard in all markets. Now that it is more standard certain distressed properties can be more easily identified, but not all. Still need to perform due diligence and verify the sales.
I have done few market analysis to compar the median sale price of REO sales VS regular sales. These were done with very large data usually within the entire city or large zipe code that provided at least 250-300 sales and for a long period of times usually for two years priod divide in 24 quarters. 250-300 sales for each quarter has more chance for accurancy than small and limted number of sale. I found out that in all 24 quartes the median sale price of REO sales were lower than median sale price of regular sales but the range were different for each quarter ranging from 9%-17%. I can use that ratio for adjusting REO sales VS regular sales.
Realize that some agents may not have checked the "REO" box and thus you may need to hand sort through all the supposed "non-REOs". I have to do this when creating my graphs for SE WI.