Appraisers' Free Forum

This is something I’m encountering a lot lately; Assignment is from Bank A for a short sale analysis. Bank A owns the paper and naturally wants to have an idea of how much of a loss they wish to take. Prospective borrower is using Mortgage Company B for the purchase. In an ideal world we all would like to have a copy of the sales contract for any purchase transaction, but my experience with short sales is that it isn’t always possible. If the agent is typical, they are conditioned to fax over a copy of a contract to an appraiser when it is requested, if the agent is REO savvy and skilled with the sleight of hand, he will consider the appraiser of the short sale to possibly be an enemy to the transaction and a part of the quality control hurdle. I’ve had them refuse to provide a contact since they tell me they already gave one to the appraiser doing the assignment for Bank B. It is becoming an art to "trick" the listing company to fax me a copy. I have had various experiences with different lenders. Some readily supply the purchase offer along with the short sale analysis order, while some prefer to not provide it and expect a report without the “target”. One guy with Bank A told me recently, “We have the offer and will review the offer along with your report. We’re not letting you see the offer.” What are you folks seeing?

So you remain USPAP compliant, ask them to change the assignment to market value with the hypothetical conditions that it is not under contract and the seller is not under duress. You can't analyze a sale that you have no information about.

Edd Gillespie wrote:So you remain USPAP compliant, ask them to change the assignment to market value with the hypothetical conditions that it is not under contract and the seller is not under duress. You can't analyze a sale that you have no information about.

True, in fact some of the short sale assignments are actually loss mits, they aren’t always clear when they order them. It will get even stranger in the next couple of years. I’m getting assignments for short sales where the subject is not listed, some where the subject is listed and active, some pending, some active which have been pending one or more times recently, I even had one which had closed months before and the lender either wasn’t happy with the BPO on it or it fell through the cracks. BTW, almost all of mine want MV and LV/Quick Sale value and most order short sales the same way they order REO assignments; I have to assume it’s the way their machinery is set up. I have not seen an assignment with the words "Loss Mitigation” in over 10 years, yet that is exactly what many of the short sale assignments are. Another note on analyzing the contract, quite often on the short sale assignments there are multiple contracts.

I'm not sure I agree that you should appraise the property at market value. It sounds to me more like the bank wants to know short sale or quick sale value. I'm not sure why you would have to have a contract to do that... although, it's always nice to get all the info you can.

I've seen the same thing.
Property is in contract and I'm doing the short-sale appraisal for the lien holder. Sometimes I find out the purchase price, sometimes I don't. I follow Edd's advice and report what I know and the steps I took to obtain all the information I can.

If I were the client holding the note, I would not want my appraiser to see the offer under consideration. I would want as independent a valuation as possible.
This is similar (IMO) to a situation where we are being hired by a private-party homeowner who has received a purchase offer on his/her house. They might hire us to give them our independent opinion (independent of the offer) and they'll use our data to make an acceptance decision or counter.
In this case we are not appraising for the purchase-mortgage financing. We are appraising the subject so to give the client information it can use in evaluating the offer. This is a difference in intended use and (IMO) changes the need to review the contract (In a purchase-appraisal, I think reviewing the contract is warranted. In an offer-evaluation appraisal, I don't think reviewing the contract is necessary or warranted).

So, I don't sweat it or really care if I can or cannot obtain a copy of the contract.

I'm doing a similar type of assignment right now. It is an REO that is already listed. I have not concluded my final value opinion, but the value indicators are that the house's market value is higher than the list price. I'd come to that conclusion without knowing the list price. When I'm done with the assignment and sent it off to the client, I'm going to call the listing agent and ask her what her list strategy was.

Denis DeSaix wrote:I'm doing a similar type of assignment right now. It is an REO that is already listed. I have not concluded my final value opinion, but the value indicators are that the house's market value is higher than the list price. I'd come to that conclusion without knowing the list price. When I'm done with the assignment and sent it off to the client, I'm going to call the listing agent and ask her what her list strategy was.

Denis that has been my experience on several assignments. On a couple of them, I almost suspected an attempt at fraud on the part of the agent. I have one on my desk now, the list price is $150,000 3 days on the market before going under contract, 5 closed sales within a few blocks in the $170,00 range, the contract is for $140,000. The listing agent who is also the selling agent is leaving messages and is anxious. I don't think he will like my report, it's a flip side of 3 years ago. I had a conversation yesterday with an honest agent who does a lot of REOs and he said soem of the most ubscrupulous agents of the pre-bubble era are flocking into short sales because they see this potential. No wonder they love the BPOs.

Steve for practically every assignment I recieve they want both a MV as defined by USPAP and a liquidation value, as is and and as repaired, 4 values. I only have one lender who consistently uses the 30 day quick sale to list, they rarely do anything, they often don't clean the dwelling, don't mow, no power, no water, all they do is get rid of the personal property and dump it.

Steve Owen wrote:I'm not sure I agree that you should appraise the property at market value. It sounds to me more like the bank wants to know short sale or quick sale value. I'm not sure why you would have to have a contract to do that... although, it's always nice to get all the info you can.

Now that I think about it, neither do I. But, while we are on this, what sort of evidence will you use to support your estimate of liquidation value? I have been looking at REOs that are reported as being fire sales, but there is not consistency in the motivations of the sellers, condition can often be a wild card and lack of financing and afford-ability enter the situation on the demand side as well. There mere fact that a bank is willing to finance the sale can change the dynamics tremendously.

Edd Gillespie wrote:

Steve Owen wrote: But, while we are on this, what sort of evidence will you use to support your estimate of liquidation value?

Not that difficult really, I use a 3 county saved search for bank owned which sold in less than 30 days as a start, then sort the last 3 month, 6 months, 12 months. I also use one particular bank which is notorious for being both anal in their requirements, yet being idiots when marketing their properties, I won't call them complete fools because they still order appraisals. $$$$

Senior Jefe wrote:

Edd Gillespie wrote:

Steve Owen wrote: But, while we are on this, what sort of evidence will you use to support your estimate of liquidation value?

Not that difficult really, I use a 3 county saved search for bank owned which sold in less than 30 days as a start, then sort the last 3 month, 6 months, 12 months. I also use one particular bank which is notorious for being both anal in their requirements, yet being idiots when marketing their properties, I won't call them complete fools because they still order appraisals. $$$$

What sort of adjustments are you making?

Anywhere from 10-30%, it seems to be less for smaller, less expensive homes that are being purchased as investment properties, properties that will be owner occupied seem to really take a beating if they're a true distress sale. There are still graudates of the Carleton Sheets courses who are willing to buy rentals it appears, amazing actually. Another factor is the $8 K free give away, IMO that has FUBARed everything recently, especially in cookie cutter NHs. It may reach the point that a BPO for $50 will be more profitable than a URAR. On the opposite end of the REO distress sale is the credit union REO, they're stingy as hell, will turn the juice and water on and since it's their money, they will make every attempt to minimize the loss.

I see somewhat the same percentage discounts here when compared to non-REO sales, and I think the primary cause is that it is so difficult to finance an REO. I am told banks have a policy of not lending on REOs. It seems the policy is to "launder" the thing trough an investor. Do you think that is due to warranty of title concerns or are they building a floor on the market?

Edd Gillespie wrote:I see somewhat the same percentage discounts here when compared to non-REO sales, and I think the primary cause is that it is so difficult to finance an REO. I am told banks have a policy of not lending on REOs. It seems the policy is to "launder" the thing trough an investor. Do you think that is due to warranty of title concerns or are they building a floor on the market?

Without question that is a factor, on some I've seen the agents I trust will give me a heads up and say they see no way a certain property will get financing and will be a cash sale to an investor, when I see those I adjust accordingly. Warranty of title, now that is a good question. If it's a concern to a buyer, it has to be a concern for a lender. Special warranty deed vs. General Warranty deed, which one would you prefer?

Senior Jefe wrote:

Edd Gillespie wrote:I see somewhat the same percentage discounts here when compared to non-REO sales, and I think the primary cause is that it is so difficult to finance an REO. I am told banks have a policy of not lending on REOs. It seems the policy is to "launder" the thing trough an investor. Do you think that is due to warranty of title concerns or are they building a floor on the market?

Without question that is a factor, on some I've seen the agents I trust will give me a heads up and say they see no way a certain property will get financing and will be a cash sale to an investor, when I see those I adjust accordingly. Warranty of title, now that is a good question. If it's a concern to a buyer, it has to be a concern for a lender. Special warranty deed vs. General Warranty deed, which one would you prefer?

So, do the brokers give you any clue as to why they think there will be no financing avaliable?

Edd Gillespie wrote:So, do the brokers give you any clue as to why they think there will be no financing avaliable?

From what I've gathered if a certain box in the URAR doesn't say "AVERAGE" for the subect it screws up the entire deal. Appraisers certainly hinder progress don't they?

Oh. I was talking about those that they can't get a contract on due to lack of financing (i.e. effective demand). No consideration for condition. What do the say about those? I haven't completed a statistical analysis, but it is definitely my impression that condition, while important in adjustment, is not driving a 20% difference in price. Not all have been trashed and yet almost all are heavily discounted. Here is a nifty graph I saw today depicting the price differentials in commercial distressed properties and ordinary sales in declining market. Guess what? @ 20% +-.

Click on image to enlarge.