REO's

[jeff samolinski]

Interested in how you all do your REO's, particularly the as is and the as repaired values. Do you pull 3 comps in similar as is condition and grid them out, then pull 3 best comps in as repaired condition and grid them out? I think some appraisers merely do comps that are in similar as is condition then add in the estimated repair costs for the as repaired value which seems to me to be wrong.

 

[Walter Kirk]

It really depends upon the assignment. The market value as repaired is straight forward, use comparables in average condition, provide a cost to cure to bring the subject to average condition, make the value conditional upon the repairs being made.

The as-is is different. It is usually difficult to find sales in poor condition and unless it's part of the assignment I base the as-is value on my repaired value minus the cost to cure and an investors mark up or profit.

 

[EDWARD BERRY]

BOTH WAYS are useful.

You need to search the forum for REPO STIGMA fo many good comments.

Remember that just the $$$ to cure is not all the picture. Who is going to oversee that?. Time and management is $$$$. Any who will do that for 000.

Many times there need to be add the "profit" or whatever you want to call.I cannot spell euntonererpership.

The read the STIGMA comments.

Most appraisers appraise REPOS much too high.

Some appraisers with good REPO data use a downward adjustment for marketing conditions, HUD IN SOME CASES will allow that.

GOOD LUCK, ed --50% repos of my business.

 

[Farm Gal]

Jeff:

It helps a lot to have done years of cost estimating, so you have a really good idea of aggregate costs rather than additive line item costs... as jobs vary in total expendature by many factors.

In addition, it is best to look at certain types of REO through several sets of lenses before coming to a value conclusion.

Some REO properties are going to appeal to one set of potential buyers, some to other sets.

REO purchasers come in several flavors including but not limited to:
~One off future resident/owners who are hoping to get a bargain.
~The (gal or guy) who was looking for a hosue in the area because some other family memeber/job/ locational issue appealed anyway.
~The local fixer-upper who has a viable business rehabing properties PROPERLY for resale.
~The superscum-slimy local fixer upper who throws on a coat of paint and spends 24.99 at the local Home Depot garden store to make the front yard pretty...and sells for top dollar
~ The incurable optimist who just quit his day-job and pulled all his/her $$ out of the stock market to invest in real estate.

Point being you have to consider the potential buyer pool for EACH INDIVIDUAL PROPERTY in arriving at your value conclusion.

The typical happy wanna be occupant-homeowner is NOT going to be able to foot both the required repairs and the mortgage on a heavily damaged home...

And sometimes folks bid waaayyy too much for one with nominal repairs under the impression they are gettign a baragin.

it depends.

Consider whether or not a property is eleigible for traditional financing as is... or is eligible for assistance through local or national repair programs.

many factors!

Then constantly grade yourself and watch what is happening in that submarket.

Even the best of us get surprised sometiems by what happens after we educatedly guess .... err appraise the occasional REO oddball!

DO talk to folks who buy these and rehab... they are a real source of REAL info!

 

[Darrell Hignite]

Jeff,

I have been doing REO's for years and while the aggregate might be right, if you haven't done it for years, it may be easier to follow these rules...

When doing the "as repaired" value, it is easier to come up with the value using comps that are in Average condition.

When doing the "as is" value on REO's, most REO's are foreclosures, so use foreclosures with the same or similar conditions. When doing HUD foreclosures, we were encouraged, and told to use VA, or HUD foreclosures, mainly because they didnt' want to keep them long. They wanted quick turn times on their REO's. I hope this helps you.

Good luck and happy appraising. Now here come the vultures. :rofl:

 

[jeff samolinski]

Darrell:

What your saying makes sense to me as well as the others. I was most concerned about my hesitancy to just add or subtract the estimated repair costs because it seems to me that one would have to grid out comps for both the as is and as repaired value to determine what the contributory value of those repairs would be ie.... not just simply a matter of adding or subtracting repair costs cause some repairs may have more or less contributory value.

 

[Mike Garrett RAA]

The "as repaired" value estimate should be more than the "as is" estimate plus cost to cure, otherwise, there is no incentive to bring the property to average market condition. I just did one where the cost to cure was nearly $10,000 but the contributory value was more than $15,000.

The property could have been sold in "as is" condition but market would have been investor types who are generally not willing to pay market value for "as is". Their goal is to buy it for as much as 25% below it's "as is" value and then do the work themselves and sell it for above the "as repaired" value.

 

[jeff samolinski]

Mikey:

Was hoping you would chime in cause I know you do a lot of these. How do you establish the quick sale value? Do you analyze the days on market for sales and the sales price to listing price? Thanks in advance for any input. I am just trying to see if I can pick up any tips from the wise one.

 

[Mike Garrett RAA]

It depends....

Read the REO form, it asks for a quick sale value (90 ~ 120 days).

So much depends on your local market, that is why the bank, agency, or Fannie Mae relies on a local appraisal as well as their managment company.

I always try to use REO sales for comps, if I can find them, for the "as is" value. Once the property is brought to average market condition I prefer to use normal sale transactions. Often an REO that has been refurbished and updated will bring more than a typical "average condition" house because so many things are new, ie, appliances, paint, carpeting.

The Fannie Mae property manager here likes to find out my value conclusion before putting the property on the market, he then tries to get them to list it about 10% below my number for a quick sale. If it is a manufactured house he tries to go even lower. We have seen a bit of "dumping" of REOs recently which, in my opinion, isn't really necessary.