REO's and the income approach

[Bobby Bucks]

On the majority of my REO’s I do not consider the income approach “if” the property is a complete wreck. I’ve had instances when underwriters will essentially ask for an “as is” income approach and a “subject to” income approach.....then a 90 day, 120 etc... :-(....In my mind you get into an area where the demand will come not necessarily from a normal investor, but a flipper...a legal flipper I might add.....anyway, passive investors usually shun the properties with megga damage and are only seeking the ones with cosmetic improvements needed.....just wondering how others handle the dilemma of the income approach on REO’s in their various condition stages.


swimming in REO’s at the ranch

 

[Restrain]

For the typical single family home, I do not consider the Income Approach as most foreclosures that I do are not what would normally be used for rental properties. (Note: we do foreclosures that exceed $750,000). In the few cases where it might be an income or investor property, then I plug in the income data, making this part of the "as repaired" analysis and comment to that. We have done the income approach on multi-family properties that have been foreclosed on.

 

[Richard Carlsen]

<span style='color:darkred'>Dear Bobby out on the Ranch: Pray for me.

I will inspect a house this morning that was listed twice for $79,000 and $81,000 and did not sell. A HUD Code manufactured. When talking to the broker yesterday to gain access, he said, "I don't think you’ll need a key. It has been open since last winter." Then he went on to tell me that he had a bid from a contractor for $38,000 to do all necessary repairs on the house. Oh my gosh, will this be fun to document.

And I, the lowly appraiser am to come up with all of the magic numbers for this REO so they can bail out of it with dignity in a mere 90 days. I'm not sure the $450 fee is enough.

Excuse me now while I go and put on my old set of waders so I can go do the inspection. Let’s see, what did I do with that bottle of disinfectant?</span>

 

[bradellis]

Ter-

You can do the income approach- but some clients will just not get it. Case in point:

HUD requires it on REOs for 2-4 units. The handbook requires you value them "as is". Most are uninhabitable "as is". They just don't get it. So here's how I'd proceed:

"As Is"- achievable market rent is zero. Zero times the GRM is zero. Indicated value of the subject, as is, is NOTHING.

"As Repaired" (for those clients who ask) is simple.

Brad Ellis, IFA, RAA

 

[Bobby Bucks]

Roger......REO’s in excess of $750,000? Is that routine? It seems everything is bigger in the Lone
Star state If it’s multi-family I’ll include the income approach even if it’s not asked for.....

Brad I like that....zero times the GRM is zero

Richard I love those REO’s when the listing agent say “Just go right on in, there’s no lock
box....there’s probably not even door.” ...I keep insect repellent, snake leggings and a baseball bat
for REO’s....the worst REO I ever saw had about 15 cats living in the house.....the owner apparently
was an animal lover.....he had cut a large hole in the kitchen floor all the way through the subfloor
so the cats could come and go at will...he also left enough cat food piled up to last for years.....just
my luck.....all my life I’ve wanted to visit a cat house and I arrive in casual attire.

 

[Verne Hebert]

We should create a post with a short narrative on the rattiest property(ies) we have ever inspected.

I'll tell you what. I have seen a number of properties in East Oakland that curl my stomach even beginning to recollect them.........And you know what? Real rental income existed. Be careful with zero-it is a special number. Although in all practicality, in terms of a contributory approach to value, it may as well be zero.

I recently got a condemnation appraisal from Montana DOT. We had a cup of coffee and DOT wanted to philosophized on theoretical possibility of the "just compensation" to the land owner being "zero". You see, this is a hard one to swallow if you are the land owner. The government takes some of your land and then they tell you they owe you nothing (zero $) for the "take".


My one is more easresponse was that there are alot of numbers close to zero that reflect a near zero value in all practicality, but a zero value is both theoretically and realistically possible. But the pure study of probability says a positive value or a negative value is in probability more likely.

Side Note: Land owners also struggle with a negative value for the "take"; but this is explainable in pure english.

Food for thought.

Verne J. Hebert