Dear AC, regarding REO comps (general)

by AC , Thursday, January 17, 2008, 18:44 @ Sloth

Sloth:

I think its best if the whole board answer this one. I'd like to learn from others too.

My opinion is that the best way to determine market influence and direction is by cafefully STUDYING what the CURRENT and PAST (EXPIREDS) listings are doing in addition to Sales. Pay attention to days on market (DOM) and Original Listing price versus current listing price. Pull up everything.

I have run into this situation several times myself. Where there was no 3rd arm's length comp and I had to use an REO "quick sale" as the 3rd comp. I'm of the opinion if you use 2 similar arm's length sales and 2 REO "quick sales", give them the appropriate adjustments, including one for a declining market (time adjustment). Then if you reconcile in the middle to lower-middle or even toward's the lower end if the market is still declining; maybe that's all that is needed. Make sure you disclose you are using Bank owned sales. It gets tricky, because of what I've learned in the "quick sale" or "short sale" process. These can get "drummed down" real far because basically it's the lender listening to the broker's many appeals to lower the price --so they can get a commission. And who is to say the Broker's appeals aren't correct? They after all listen to the feedback from the few available buyers in an REO market. Often they get no "lookers". An REO market is one weird market. The lack of sub-prime money is really changing the whole "ball game". And as you know, looking at a listing in MLS, especially an REO listing will "leave you hanging", because there could have been a significant amount of damage or vandalism (stolen copper pipes, break ins, water pipe bursts ruining floors, etc) to that REO listing/sale -after it was listed. Especially in freezing weather climates. Don't expect a Broker to always change the writeup in the listing after it's on MLS. We simply have to dig into and keep calling the broker till they call you back with information. Call the office manager if you get no response.

Even Mom and Pop mortgage companies are asking for things I've never seen because their investors are worried. The other day I did a sale in a market where REO sales are not yet prevalent. I turned in my typical 6 Sales Comps, and stated twice in the report that there are no more Comps. That's all there are. Usually I use 4-6 Sales Comps, except on the rare occasion when only 3 Comps "nails" it and a 4th would muddy up the "picture". Sure enough, the lender came back and asked for 2 more comps. This was the 2nd time this happened in a month from 2 different lenders (asked for 7 and 8th Comps). The 1st time it happened the loan fell through because I could not come up with a 7th & 8th comp. One of which had to be a 2 bedroom in a merket where 2 bedrooms are very uncommon. I've been doing appraisals for 16 years and prior to this nobody ever asked for more than 6 Comps...

Your "PLEASE NOTE" statement about Ameriquest I'm familiar with. I just saw that myself in an AMC job order request. In that job order they continued with these instructions:

AT LEAST 2 sales MUST be in average or better condition to provide market support for the As Repaired value. However, if you are in an REO market, at least 1 sale must be in average condition to provide support for the As Repaired value.

* If you are in an REO market, you must include the individual MLS sheets for the listing and sales comps as well as an MLS Competitive Market Analysis (CMA) for your neighborhood. The CMA is generally a one liner MLS run of all competitive properties in your neighborhood.

TERMS (Quick Sale or Short Sale):

A short sale is when the bank allows you to sell your property even though the mortgage won't be paid. But read the fine print: The bank may allow the sale to go through only if you repay the deficiency.

In a deed in lieu of foreclosure, the property is signed over to the bank in exchange for the bank giving up its rights against you.