What can a Lender demand on conditions?

[Mike Garrett RAA]

If REO sales are typical to your market, failure to use them would be mis-leading...in my opinion. I still think there is considerable confusion about what FHA has said. They do not want the actual foreclosure sale (steps of the court house to highest bidder) to be used; however, once that property is offered for sale and exposed to the market they are representative of the present market.

 

[Lobo Fan]

I had a very long conversation with the Denver HOC on that very topic not too long ago. They were adamant that any REO comps should not be used even if the subject was an REO. They did not differentiate between courthouse steps and regular REO sales. The appraiser had to prove that REO sales were the predominabt type of sale in the market to justify using them. I was able to make the case for a MH in a rural area where every other MH closed sale in the last 18 months was a REO. Otherwise, they want regular sales, even if it could be misleading. I took it that they wanted to be mislead.

 

[Mike Garrett RAA]

So lets see...if you had, say, 6 sales that occurred in the last 6 months something like this....

Sale #1 06/01/2007 $100,000
Sale #2 06/01/2007 $100,000
Sale #3 07/01/2007 $97,000
Sale #4 12/01/2007 $90,000 REO
Sale #5 12/31/2007 $89,000 REO
Sale #6 12/31/2007 $90,000 REO

Are are model matches, manufactured homes of 1,700 square feet GLA, all in the same subdivision. Which three would be the best indicators of value?

 

[Couch Potato]

So lets see...if you had, say, 6 sales that occurred in the last 6 months something like this....

Sale #1 06/01/2007 $100,000
Sale #2 06/01/2007 $100,000
Sale #3 07/01/2007 $97,000
Sale #4 12/01/2007 $90,000 REO
Sale #5 12/31/2007 $89,000 REO
Sale #6 12/31/2007 $90,000 REO

Are are model matches, manufactured homes of 1,700 square feet GLA, all in the same subdivision. Which three would be the best indicators of value?

Are they 6 different properties or the same three with two transactions each?

 

[DHeriford]

FHA does not want you to use any foreclosed properties as comps even if you are appraising and FHA repo. They want all free market, all arm's length comps. If you use REO comps, you must demonstrate that REO's are the driving force in the marketplace. For example more than 50% of the sales in your market area must be REO's.

So if you used a REO as a comp, they are correct in asking you to replace it with a non-REO comp. Read up on your FHA rules. They have all kinds of restrictions on comp selection.

We did just this yesterday. FHA apprisal in a market that 80% of the sales in the past 12 months are foreclosure sales lol.

 

[Lobo Fan]

In Mike's example the case could be made that REO's are dominant in the market and in that case it would be acceptable to use. You do have to prove that REO's are the market. Otherwise you would have to disregard the REO comps to remain compliant with FHA. I realize ir defies logic but that is what I was told.

 

[TXCBoy36]

If your listing was comps 1-3 then it is a problem. Otherwise it looks like a flip which lenders don't like. Even if it is a legitimate flip. Comp selection is always up to the appraiser as long as you go by the original rules. FHA wants 6 months, one mile, and all arm's length for example. After that, it is the appraiser's call.

No, it was Comp#6....all of the other 5 comps were sold properties...

JC:new_llying: