REO's as comparables to non-REO

[Terrel L. Shields]

The entire neighborhood is 1955-1961 Ramblers many in the same condition and with the same amount of updating as the subject.

amazing neighborhood...all the lemmings updating identically.

Lemme see... I am a buyer. I have a choice between a property that is 1.5 miles from my other choice. Obviously, that is a different world. I would never venture more than 1.5 miles from home... say what? I can drive from one end our our farm to the other and lordly knows by the road it is 1.75 miles. Why would neighborhoods 1.5 miles away not be "competing" with each other if otherwise reasonably similar. Focusing upon a tiny area within the magic one mile circle of Fannie influence will invariably lead to distorted values for the simple lack of comps. The homeboy to stay within that distance limits the overall values.

No one believes that REOs are NOT impacting the value. Obviously, they are depressing the prices of the arm's length sales... but REOs are never "the market"..never so long as there is one arms length sale that sold for more than an REO.
People don't go to the bank to buy their property. They don't want to guess what condition the home is in. Most of our homes sell with a warranty. REOs typically are sold "as is", often with serious obvious and not obvious defects. Most cannot be financed thru FHA or other common sources of credit if they have that history. Closing on these properties is often extended and fallen contracts are more frequent. They are depressed sales. If you don't adjust them up significantly, you cannot be valuing "market value" as fannie defines it, you are valuing liquidation value.

Tree rings were used as proxies for climate change temperature data, one of the things that got those East Anglia PHDs discredited.

i think that went zoommm right overhead Roger. Yes, temperature can affect tree rings...but moisture affects it more...

 

[Cliff]

REO comparables

I would stick with sales within my direct neighborhood. If most of the sales are REO's that are the same models and with similar condition, then that dictates the current market. Reseach how many REO sales there are to standard sales in the subject's neighborhood. If it's all REO sales, then thats your current market.

Explain to the broker or client that there are (blank) REO sales in the subject's marketplace and only (blank) many standard sales. Explain why the closer model match sales are more similar to the subject. Does the further sales share similar taxes, neighborhood characterizes, public schools, etc. Research those further sales and they explain your reasons for choice in comparables.

 

[Atlanta CG]

Have to agree with Mike Garrett. And adjunct to this argument is the one that banks use to hire agents to do BPO's to establish a value to same money instead of hiring an appraiser but end up by distorting reality in the market. We have a short sale on the market for over a year, one offer $20k below asking as established by an agent, two others had inspections and walked away due to the potential costs to repair. Demanded a new appraisal, got another agent doing a BPO, all she could do was gush about the faux painting on the walls and how she just loved that. Wonder how that value is going to come out.

 

[JSmith43]

Dig down a little deeper.

http://appraisersforum.com/showthread.php?t=175147

 

[Howard Bouchard]

If all else fails use Puffing.

Demanded a new appraisal, got another agent doing a BPO, all she could do was gush about the faux painting on the walls and how she just loved that. Wonder how that value is going to come out.

LOL - I have always assumed that the buyers in a sales transaction would want to know what the market is telling us and would respect our opinions based upon that data, but how often have I been proven wrong. Not that most or many market transactions are fouled by appraisers as most and many are made by informed buyers who have spent time with a Realtor looking at enough properties to make an informed decision. However for that percentage that don't work out in everyway, or REFIs, it has always amazed me at how the defamation begins. We are then inpugned with lack of competence and ancestory. You have to have a strong backbone to be a good appraiser today. Even the same clients who impose conditions of appraisal in their engagement letters later attempt to thwart those same edicts if they don't like the end result from their use. And then their are the appraisers with no backbone and still enquire of homeowners about what it will take to make the deal refi. How do you compete with that?

 

[J Grant]

The broker wants me to go outside the neighborhood (as far as need be) in order to use only non-REO's for comparables. He suggested using a comp that was 1.5 miles away and out of the neighborhood. The REO's in the immediate neighborhood are in the same condition and are selling in the same amount of time as non-REO's.

Lots of posts lately and I posted on my view of when to use REO's on related threads. But why do you care what "the broker wants me to do?" Tell the broker you are not supposed to be talking with him/her at this point and hang up the phone. Even if you choose to speak to the broker, we appraise to our own standards , not what an owner or realtor or broker wants, very scary to read that what a broker wants is being considerd.

 

[panappr]

And then their are the appraisers with no backbone and still enquire of homeowners about what it will take to make the deal refi. How do you compete with that?

But isn't that against the law..... I think Mortgage lending will always revolve around a magic number, too many jobs depend on it. I've noticed most of the truly competent and honest appraisers have switched channels and are doing other types appraisal work.... reviewing, divorces, trust and bankruptcy, private money, etc. or working part time. The lending work that comes across my desk now is usually a one shot pony with problems..... It seems if I miss 2 in a row I mysteriously never here back from them. Still trying to collect some Dec. invoices. How many paying AMCs are there anyway? It's a numbers game.

 

[Randolph Kinney]

Has anyone done a study examining the impact and effect on value with REO properties being adjacent to a traditional properties? Which one sold first and how much difference in the list price versus sold price of each?

How many REO properties, how far from the traditional property?

I suspect that the farther away REO properties are from a traditional property, the less impact on value it has. I suspect that the number of REOs in proximity also impacts the value of traditional properties.

Therefore the idea that an appraiser should leave the area to find traditional sales and ignore the effect of REO properties in proximity could create a false value.

 

[J Grant]

but REOs are never "the market"..never so long as there is one arms length sale that sold for more than an REO.
People don't go to the bank to buy their property. They don't want to guess what condition the home is in. Most of our homes sell with a warranty. REOs typically are sold "as is", often with serious obvious and not obvious defects. Most cannot be financed thru FHA or other common sources of credit if they have that history. Closing on these properties is often extended and fallen contracts are more frequent. They are depressed sales. If you don't adjust them up significantly, you cannot be valuing "market value" as fannie defines it, you are valuing liquidation value.

That may be true for your market, and then you should appraise accordingly. But in most markets where I am appraising in Florida, and in many areas around the country, above conditions are not true.

Below is true for my market: Very few homes here sell with a warranty, unless they are new homes from a builder. The REO homes are listed on MLS, the buyers can walk in and see the condtion, the same way they can see other homes.
The REO's are sold as is, meaning the sellers won't pay for repairs. Here, most traditional sales are also sold as is, seller won't pay for repairs. And if they do, it is a small amount, capping around $2000.
On REO's, the contracts are standard FARBAr contracts that allow for home inspections and for buyers to walk from contract if they find defects, same as any other house.
Closing with the bank if often faster than with a private owner. The REO is vacant, typically the bank wants to close as soon as possible ( short sales might be a bit diffrerent) In my market, FHA or any other lender lends on REO's, unless the condition is a wreck and does not meet FHA standards.

Imo, the issue derives from many appraisers applying the meaning of "arms length transaction". Nowhere in fannie or USPAP or any other appraiser guidelines does it say that an arms length transaction can't be between a lender as seller and a private party as buyer. It defines arms length transaction as unrelated, typically motivated buyers and sellers.

Some might say the banks are not typically motivated. I say, if banks own a signficant portion of homes in an area, their motivation reprsents a typical motivation, re, to sell the property in a reasonable time frame on the open market. Individual bank policies may vary a bit, just as individual owners priorities may vary. Some individuals may want to sell quick for a lower price for personal reasons, some may not. Most banks, in my market, want to sell in 60-90 days, but won't sell if the price is too low and will keep it on market longer thann that. They place the REO's with realtors on MLS. The buyers can get whatever financing they want, or pay cash. Most buyers consider both REO and non REO properties within many subdivisions.

 

[JayArGee3]

DOM As A Qualifier

DOM can add weight to some SS. In a mixed market, a SS which has been listed for several hundred days and had its price reduced accordingly until it finally found a buyer could be considered a credible indicator. Enough of these and you begin to get an outline of MV for the neighborhood. Auction sales can also be indicators.