Appraisers' Free Forum

My mentor says to use REOs as comps, as much as possible, and I have 1 closed REO, and 1 closed short sale, as well as 2 pending REOs. For my third closed comparable sale, can I use a regular sale and explain, explain, explain?

Is it a predominantly REO market?

Who's going to buy this house? Joe Public home buyer? Is the house in mortgage ready "AS-IS" condition? Or is it investor bait, because it needs repairs, and the lenders don't typically do repairs in the area because of the predominance of REOs in this particular sub-market? Compare it to properties it would compete against. Take a look at the REO active inventory that it actuallly will compete with too, since in many places, we are now in a market that demands a little more forward thinking/looking (certain areas of Cali especially from what I understand from here).

Ditto the above - what's the market, who's going to consider buying it, don't expect the bank to fix it even when they want an "as repaired" estimate. If I could find the right place right now, I'd sell mine (and I just spend a bunch on new laminate) and go out there and pay cash for the REO. So it needs repairs! I can do that here and there! The competition that I'm looking at is what are the other REOs and where they're located.

It looks like I'm going to have 1 closed REO, 1 closed short sale, 1 closed regular sale, and 1 each active and pending REO. I was wondering which you would place the most emphasis on: a closed sale that's an REO but not as similar, or a closed sale that's very similar but not a foreclosure?

There is no rehabbing needed. Subject is three years old, good condition, just needs carpet cleaning - definitely mortgage ready "as-is". Buyers are Mr. & Mrs. Joe Public, not investors. The one closed REO I have was a fixer. However, out of 11 actives of similar size, room count, amenities, etc., only 2 are regular listings. All the others are either REOs (one was listed as a fixer) or short sales.

Driving the comps it was easy to see the foreclosed properties - brown lawns and dead landscaping in a neighborhood of well-manicured green lawns. Pretty sad.

My brain is going nighty-night without me, so I better follow. I have to drive to Hemet (1 1/2 hr. one way) in the morning. Not complaining! I haven't had an assignment in over 2 months and I've got 2 this week! Woohoo!

Well, don't you dare click on the link to Joker's Porno sites below

I guess I have a different opinion that most others on this subject ... and ftr ... I have done a lot of REO's ....

Why would you use other REO sales unless the predominance of market is REO sales? I mean ... is the subdivision or the neighborhood declining to the point that the majority of the market is in foreclosure? If so .. use them ... because that IS the market ....

but ....

Most markets are not this way ... they may be, as you say, ONE REO sale ... but does that sale represent the market? Is it really comparable to the subject?

To date .. I have NEVER used an REO sale .. a short sale or any other non-market sale in the development of an REO report. It seems to me that the lender needs a picture of the market and how their newly acquired property is going to fit into that market ... after all ... isn't that what the REO appraisal is for?

I use market sales and then adjust them to the subjects condition, age, amenities, etc .... this gives the lender of picture of how their property stacks up to the rest of the market.

This is not to say that the other REO sales do not have a use in your report. Most lenders want to know what the "quick sale" value of their property is estimated to be ... this is where your other REO sales come in ... they will give you a picture of the discount rate needed to determine your estimated quick sale value. Find the last arms length sale price of the property and apply your market appreciation rate to that price. Now determine the most recent sale price of the property, as an REO. Divide the smaller sale price (the REO sale) by the appreciated previous sale price and you have a % figure. Gather enough data to enable you to reconcile a "discount %" within the market you are working in and apply the discount rate to your value opinion as the "Estimated quick sale value" ...

Lenders also usually want a "Cost to cure" estimate for items of deferred maintenance, physical damage, or reduce or depleted function. A cost repair cost service is needed. That combined with some local data from home repair and remodeling companies, painters, plumbers, general craftsmen, etc. will assure you of some fairly accurate numbers. Don't fall into the trap of just adding your cost to cure to the "as is" value and expecting it to provide your "as repaired" value ... I am sure that there are some situations where it can ... but in general, it doesn't. Go back and look at your adjustments to your comps. Consider that your cost to cure is going to bring your subject back into line with the rest of the neighborhood ... reduce your adjustments to determine your "as repaired value" and document your considerations in your work file.

Now ... you have compared your subject (REO) to the rest of the market and found your value "as is" ... you have developed a cost to cure estimate ... you have developed value for the subject "as repaired" which should fall into line with the rest of your market ... and you have reconciled a discount % and applied it to your subject for an estimated "quick sale value" ... document EVERYTHING with photos ..... add more photos than usual to support your opinions on condition, function and effective age ... and detail your cost to cure ....

I can send you a couple as samples if you wish ... I always like to see what someone has done (read: got away with ) on REO's ... of course all of this depends on the parameters of your assignment ... it just may be that your lender doesn't care about anything but the "as is" value ... and if so ... give it to them ... btw ... REO's usually require approximately 1.5 times your usual fee for the additional work, values, liability and your time ... they aren't easy ... and they aren't for everyone ... but I love'em ... :)

Otis Key wrote:Well, don't you dare click on the link to Joker's Porno sites below

Yeah, Otis, I know where that link leads, and it would put me right out.

Thanks, DB. I'm going to digest it all tomorrow when my brain is firing an all cylinders.

Gotta agree with DB. Since it seems this is a purchase, then it is what it is. We simply report the data. If the market is deluged with REO's, then that would be the market, but if the market is typical arms length transactions, that is what you would report.
My market, if there is an REO, it is going to have to be adjusted to sell, since there is stigma attached, regardless of condition. Prequal letters, proof of funds, etc. tends to cause a normal buyer to go with the illusion of a good honest deal.
REO's that are purchased by investors are sugar coated, and put back on the market as an arms length transaction, and draw good returns.
But, as you know, Cindy, each market is different and therefor, what fits here may not fit there.

Dammit! I was SOOOO wanting that to be a porn link.

SusieH wrote:Dammit! I was SOOOO wanting that to be a porn link.

Now we know what turns Otis on. Looking at "Joker's Porn site"

SusieH wrote:Dammit! I was SOOOO wanting that to be a porn link.

You'll never know till ya click it.