Are REOs real comparables?

Dear Orlando -

This is a really big issue for me.  Thanks for exploring it.  I am going to follow your posts to see what else I can learn from you.

Have a happy day -
Lynn

Typically an appraiser throws out the high and the low comps and makes adjustments for other properties that had special circumstances.  

NO NO NO -- they shouldn't be.  I just don;t care for how comparisions are beng handled

Orlando - Ok, I get a little pissy sometimes, I know, I just don't understand some appraisers sometimes.  For most of my 8.5yr mortgage career, I had access to phenomenal appraisers who enjoyed teaching me why they do the things they do.  I learned so much from them back then.  Nowadays, not only am I not allowed to talk to appraisers, I am forced to work with AMC's and their "review boards" who typically have zero appraisal experience.

Anyways, as you have pointed out, markets saturated with REO's are just doomed.  On another note, Janet brings up a good point.  When an appraiser has more than enough comps, like seven or eight similar props, why do they use the lowest 5-6 props regardless of the fact that some of the higher props are actually better comps?  Better meaning more similar props to the subject prop.

Orlando - Just out of curiosity, have you ever had one of your appraisal appealed?  I ask because in the two years since HVCC, I have appealed more appraisals than I did in the 6.5yrs prior to HVCC.  And to answer your question, when there are more like comps that are similar to the meticulously maintained equity sale property, NO, I do not think that run-down, dilapidated, dumpy REO's are appropriate comps.  JMHO

Orlando - There are so many factors that you all use. If the market is prevalent with REO's then they have to be used. But that is what adjustments are for, correct?

HVCC hit us hard when it came out but now I don't feel as affected by them. But we all, and you all, have to answer for our actions.

We recently had an appraisal done in which the appraiser considered a home with a car port and street parking as comparable with one with a two car garage - by which I mean no adjustments were made. He also used 2 bedroom homes as the equivalent of a 3 bedroom one 300 sq fet larger without adjustments. All this happened through an AMC. The guy didin't even get the contract price right. Unfortunaely when we appealed they just sent it back to the same appraiser instead of a new one. No change in the results.

Orlando - Both Ken & Maya are in the Los Angeles county market and their comments are just classic examples of the crap that we have to deal with out here, especially Maya's.  While I am sure that you are a wonderful appraiser, unfortunately, there are so many other appraisers out there that are just horrible and yet we (Realtors/MLO/buyers/sellers) are often the victims of their incompetence. 

I could go on and on (I too have my own horror stories of sloppy appraisals) but your blog is not the time and place.  Thx for the great post though.  Have a good day Orlando.  :) 

Orlando, I thoroughly enjoyed this post as well as the comments adding to the discussion. I can understand the frustration experienced by realtors, lenders and appraisers these days. As you said earlier  "AMCs haven't really helped much in some areas." 

Thanks for a level headed view of the subjects!

Great point, Orlando.  I have buyer closing next week on a flipped home.  The flipped homes in the neighborhood are selling for 30 - 40% mor than the foreclosures in the neighborhood, both are which are prevalent.  In preparing the buyer's CMA it was easy to find 3 flipped houses that had been sold in the bast 3 months.  It also would have been easy to find 3 recent foreclosures that sold for a lot less.  Luckily the appraiser found the value in this home.

AMCs are a result of an abusive system which created problems.  The abusive system was mortgage originators and lenders holding future work as a threat to the livelihood of the appraisers.  If values were not met, they would send future work elsewhere.  The result was HVCC which mandated distance between the lender and the appraiser.  Specifically, it required that appraisals be ordered and processed by someone who's paycheck was not directly affected by the result of the appraisal.  AMCs peddled fear of violations and non-compliance to market their industry.  Some major lenders saw opportunity to fatten their bottom lines by forming their own AMC which skimmed additional fees off the consumers.  The astute and more ethical lenders, realized that compliance could easily be met by designating a staff to order and process appraisals, apart from the originators.  This saved the consumer hundreds of dollars by not lining the pockets of the AMCs and lender-owned AMCs.  By doing so, they are able to assure quality appraisal professionals meeting high quality standards while the AMCs profit by using the cheapest available appraiser, qualified or not.

Orlando, this would be a great post in the Realtor and the Appraisers groups.  I spent quite some time searching for it after becoming aware of its existence through ICAP.

The problem I've run into is with properties where there aren't comparables and your listing doesn't fit the the guidelines box.

Orlando, thanks for writing this. It isn't such a problem today in our area, but for awhile, the short sales and foreclosures were dominant in some neighborhoods.