REO's as comparables to non-REO

[CANative]

What exactly is "disposition" value? Currently the REO scope of work on Fannie type forms is to provide 4 values. Two of these values are based on non-market exposure time.

What I was posting about could also apply to a new bank making a new loan to a buyer of an REO property.

 

[J Grant]

you got me on that one, can't answer for a change!

 

[AngelEyes359]

What exactly is "disposition" value? Currently the REO scope of work on Fannie type forms is to provide 4 values. Two of these values are based on non-market exposure time.

What I was posting about could also apply to a new bank making a new loan to a buyer of an REO property.

Calvin weighed in on the REO topic and posted a definition of disposition value on another thread about a week or two ago. A key element in its definition is the seller is under duress. I don't know how to find it quickly using the search bar. Maybe someone else could.

Re: the non-market exposure values I would have a couple of points : (1) How much good is it going to do if regular marketing times already are in the low category?(2) With the new bank senario financing for purchase of an REO - Do lenders typically require an REO addendum? I have never encountered this.

 

[residentialguy]

you got me on that one, can't answer for a change!

My eyes thank you!

 

[J Grant]

So say your client is a bank that has a foreclosed house on it's hands. They ask you to provide an opinion of value so they'll know about what they should be trying to sell it for. Your MV opinion without regard to it's REO status is $250,000. So they put it on the market at $250,000. A month later they get offers of $215,000. What should they do? Accept the offer because, after all, REO's sell for less or should they hold out for an offer that reflects the MV opinion of the appraiser?

what a bank does with a house and what offers they accept after you do your appraisal is not your problem, same as with any other house. The USPAP report states the purpose is MV, you appraised for MV.

Typically, the client on a home owned by a lender will ask for the report to include an REO addendum, with listings, and an estimate of value sujbect if sold in a 60-90 day marketing time, ( or 30-60 day, dependsing on lender.)

Your MV on sales comparison page is $250,000, on the REO addendum your estimate of value in reduced marketing time of 60-90 days may be $235,000.
The client also sees on the front page of apprasial that it is a declining market, and you gave time adustments of 2% a month for decline. So the bank takes that information and realizes the home has already declined from the MV you provided a month ago.

How the bank makes it's decision at that point I am not sure, since I don't work in that capacity. My guess is, some of them rely on a formula, for example, if an offer comes in within 10% of appraised value, they will take it. Some of them may rely more on realtor feedback, has there been a lot of interest or other offers. Some banks order a BPO every month on the property. It varies.

Still, you did your job, which was to provide an opinion of MV the effective date of appraisal.

 

[DMZwerg]

Okay. So if we determine that marketing status as REOs and/or short sales is an element of comparison and the subject property is an REO or the intended use is for making a determination in a short sale negotiation between the lender/borrower how should we deal with the comps?

Do we need to modify the definition of value? Or perhaps provide two opinions of value?

Well, I would say that most people already know that they represent two different values, that neither WE nor anyone else needs to modify the definition of market value as it is either roughly the one typically used for mortgage assignments OR whatever one we come up with and agree upon with the client! Can't stress that second one strongly enough because once freed of FNMA or GP forms the definition is what you define it and thus this whole thread would have been irrelevant as long as people comprehended the difference between the types of sales (aka, "your are what you eat" and how it applies to "you appraise to what you define").


As for providing two opinions of value ... why?

Isn't one enough, especially if you feel you have to use one or more proxies and ADJUST?

 

[DMZwerg]

The answer is a range of values, from a low of competing REOs or shorts to a high of what Res and DMZ deem "typical" (or whatever the latest modifier they are using).

If REOs are "low" and what ResGuy and I have been stating is the "high" then obviously you are dealing with a well stratified market and it should be intuitively obvious to even anyone who thinks an elephant could be a brick wall that REOs would not be acceptable as comps! (in such a market)
It is the markets where there is not as readily apparent a difference, such as when some traditional sales are selling for less than some REOs if at all, that the answer is not as obvious.

I would think it prudent appraisal practice to mention a range in the current market. Of course it may make your Reconciliation and final point value determination for the form take a few minutes further consideration, which can never be a bad thing.

Doesn't every appraiser appraise to a range in Reconciliation then grudgingly put in a point value in the boxes when reporting a summary on a FNMA form or such? I have been doing that for years now.

 

[DMZwerg]

What should they do? Well, in the ideal world the bank would have a knowledgeable employee on staff versed in collateral valuation issues who would either (A) ask you to provide disposition value or (B) have an internal pricing mechanism based on historical market data to discount the opinion of MV provided so a realistic listing price could be provided. (IMO they would be better off doing this than obtaining their listing price strategy from a $50 BPO.)

General called an REO Addendum ...

 

[residentialguy]

Do we need to modify the definition of value? Or perhaps provide two opinions of value?

Modify it so you can give a 5-25% range in value? I like the idea...sure would help with the lawsuits :new_smile-l:...but I doubt the lender will.

I also like the idea of two appraisals for every order. Sure would help the slow times if they doubled up the fees woohoo

the lender...probably not so much.

 

[AngelEyes359]

General called an REO Addendum ...

The REO addendum is flawed IMO. Providing the market value figure presents no problem. But as to imposed marketing time values, is imposed marketing time really the best way to measure what an REO would sell for? Is it quick marketing time what's important or REO status?