What is an REO Addendum?

[imjiminnh]

I am a newly licensed appraiser and have just been asked to provide a lender with an REO addendum. I've neber been asked for one before and was wondering if someone out there might have some verbiage they could email me for review? Also what exactly does the acronym REO stand for? I'm guessing "Ruined by Evicted Owners". Thanks!!

Jim Scrivens

jimscrivens@jimscrivens.com

 

[Bob Ipock]

REO Real Estate Owned

Addendum for an appraisal prepared for the owner of a property that has been foreclosed on. Usually has 3 actibve comparable listing and a breakdown of the cost for needed repairs.

REO addendum should be a part of your appraisal software package.

 

[Lobo Fan]

There are actually two REO addendums, one I keep as a word document, the other is as described above. REO appraisals are fairly tricky. If the house doesn't sell within 5% of your appraised value, you will have a cranky customer on your hands. Take lots of pictures and you might want to get some help with this one.

 

[Mountain Man]

"Ruined by Evicted Owners"

:new_rofl: That's good... I'll remember that one!

The biggest thing with REO work is be sure your "repair estimates" are bases on FACTS... get actualy repair cost, hard numbers. Don't just use $1,000 for paint, $1,000 for carpet, $500 for clean up... unless you have a 600 SF cracker box.

 

[Ariba]

"Ruined by Evicted Owners"

:new_rofl: That's good... I'll remember that one!

The biggest thing with REO work is be sure your "repair estimates" are bases on FACTS... get actually repair cost, hard numbers. Don't just use $1,000 for paint, $1,000 for carpet, $500 for clean up... unless you have a 600 SF cracker box.

What are hard numbers? You can get hard numbers from five different contractors and get 10 different estimates, varying by thousands of $$$ to fix the same roof. The same goes for painting, carpet, etc. In other word there are no hard numbers just estimates.

 

[Mountain Man]

I have files and files of data on the houses I've remodeled. Some cost does not change (supplies), other cost (labor) can vary, and is very negotiable... that I'll give you. But I can guarantee you that you can not get a typical 3BR 2BA house painted for $1000... yet that's the adjustment I've seen in many crummy reports. If you don't have good solid data to back your estimates, buy either the Craftsman or Marshall & Swift remodeling cost hand book.

Now if you are like me and Bucks, you'd much rather have free then pay....

http://www.get-a-quote.net/
:icon_wink:

 

[xm39hnu]

The REO addendum calls for three active comparable listings, on which you must provide original list price, date, current list price, days on market, and a few physical characteristics. Most customers want photos, and want you to drive by the listings as well. A detailed list of required repairs, and estimates of repair cost is required. Get it from M&S, or from local contractors' estimates; be as accurate as you can. If something is beyond your ability to estimate accurately, then describe the condition and tell'em this is your best guess based on (whatever you base it on). They will want four values provided: As-is and as-repaired, considering normal marketing time; and as-is and as-repaired, considering reduced (90-120 day) marketing time. I try to use three comps in similar condition, and three comps which sold in repaired condition.

These get a higher fee; I charge about 150% of normal residential fee for them.

 

[imjiminnh]

Thanks for the advice

I found the forms in my appraisal software thanks to your help. After not being asked to do an REO in three years of appraisaing I visited 2 today. 1 covered in dog feces, the other reeking of cat urine and piled high with garbage. I took photos of everything and have some excellent examples of protective boilerplate from the last issue of "valuation" magazine to cover my A__ as far as estimating costs to cure. As far as needing to come within 5% of actual repair costs goes, I seriously doubt that 2 conractors out of 5 asked would be within that narrow a range, and theyre professionals at it.

I charged a piddling $25 extra for the REO addendum, it'll be substantially more the next time I risk my health to enter one of these disasters.

Thanks for your help and advice, and I hope everyone has a great summer (going to take a very long, very hot shower now).

Jim Scrivens

www.jimscrivens.com

 

[xm39hnu]

Ouch, Jim. I get $450 (base) for those things. Anything they want four different values for, plus cost to cure estimates, plus 20 to 40 photos, is gonna cost more.

Not all REO's are disasters. I've appraised some that were ready to sell with a basic cleanup. Still another, the foreclosed HO cleaned the whole place spotless. No repairs needed. But you've still gotta do the four values plus listing comps.

 

[Anne Matthews]

One thing to pay attention to on REO's is the supply and demand factors, in particular with regard to the quick sale value they are asking for. Do give them an indication of inventory and how much discounting will be required to sell the house in their specified period of time, no repairs or updating included.