BPO won't use short sale comps to complete the BPO on a SHORT SALE
Does anyone see a problem with this?
An agent sent over an offer of $300,000 on a extreamly difficult listing (very difficult tenent). She told me she can probably go up to $350,000. The list price was $339,000. We have been waiting FOREVER for the BPO. It came back and the negotiator called me today and told me the BPO came in at $480,000 and he was going to counter at that amount.
What!
I told him I would have to appeal it, and there was no way we could sell it for that amount. He told me the standard 3 solds, 3 actives, and any pendings. I appraised for Wachovia for years and totally knew the drill. Then he says.... make sure they aren't distressed, no short sale, REO, or foreclosure comps.
He's from Chase and said the policy is Fannie Mae's. I don't buy this at all. If Fannie Mae thinks there is a different value for equity sales, enough so to make it a requirement for comp selection, then aren't they fully admitting that their SHORT SALE would be worth less?
Replies to This Discussion
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Permalink Reply by Jeff Payne on
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Smitty, agreed... problem is that BPO agents don't have to be forced to use non distressed comps rather it is easier to use them than to make a case as to why they did not use them. If I believe that a non distressed comp is not a good comp, I will not use it and explain why. Might take a bit longer but I am hired to give them my opinion...
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Permalink Reply by Richard Beach on
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Lydia,
I remember a few months back that the Nevada legislature was trying to outlaw distressed comps for appraisals but it didn't go through for obvious reasons. Most of my BPO clients (including Fannie Mae) do say that they want fair market comparables... but if the subject property is in a predominately distressed area then short sale/reo comps may be used with proper documentation and notes. You need to prove to the negotiator that the subject's area is distressed and thus in competition with short sales and REOs.
I have to disagree with Tara on fictional values. Any active listing is a fictional value until it has sold, no matter the condition of sale. Though they do represent the competition.
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Permalink Reply by Lydia Terry on
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Listings and distressed sales are not fictional values. Distressed sales are sales that have some other form of influence, and listings are price not value. They're not fictional value, there are no value. However, the most important thing to consider here is the basic appraisal principle of substitution. The buyers eventually determine the market. They ask themselves, "Why would I pay this much for this house, when I can pay less for this house that is just about the same." Value isn't complicated, its just common sense. If a shoe retails at $400 but I can buy it for $200, the value is $200, and the price is $400.
Therefore what matters more than the distressed-ness of the comp is what can a typical buyer get "instead." Sold comps are what recent buyers got instead, and listing are what a current buyer can get instead. It would be foolish to ignore either.
So it makes sense to me what Susan Meehan said. That is sound appraisal practice. If all a buyer can get is distressed sale, then I can force the issue. Thanks.
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A BPO is different from an appraisal. Fannie Mae can dictate and make policy regarding their BPOs. An appraiser must consider all relevant transactions that occurred in the market and then determine its relevancy. An appraiser cant ignore REOs and short sales if they're competing with traditional sales in the market place. If there are not many short sales in a market, then distress sales should not be used. If there's atypical motivation the appraiser's analysis should determine if this is comparables, if so, should an adjustment be made. FM is trying to determine what the market's non-distress value to maximize its return to its investors.
Did you meet the BPO Agent at the property? At this point, appeal, appeal, appeal, be vigilante. Good luck.
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I have probably done 2000 BPOs over the years, don't do many any more because I got tired of fighting for payment. If the instructions were to avoid short sales and REOs and that was impossible, I simply explained that the non REO non short sale comparables were not good comparables and backed that up with a really good explanation. When they sent it back for quality control or review, I always held my ground and reminded them that they hired me for my "opinion" of value and I would be violating my duty to them if I gave the property a price that I did not believe in my "opinion" the property was worth. Worked every time.
Too many times BPO agents are new or they just want the quick $40.00 and they take path of least resistance which is a problem and maybe even a violation of their code of ethics. Especially if they are giving a value that is not the value of the property.
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Fannie Mae also sets up their own appraisal guidelines, which are industry setting. Why would they not use their own guidelines in setting up BPO requirements?
Asking that question I think I know the answer. I think Jeff Payne is right on the money. When FNMA said "explain any comp choices that are over 1 mile away" appraisers thought "I can't use comps that are a mile away." I imagine this is the same. Instead of explaining why distressed sales were used, the misinterpretation is "I shouldn't use distressed sales." It may just be bad valuators. They gave me the comps used, and they were.... nothing like the subject property. They are almost mansions. Luxury. It is a bad bad valuation.
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Lydia, our problem is that in my area, there are alot of inexperienced agents doing BPOS, agents that may not have sold a property in the last 4 years. They really know nothing of values, DOM, offers etc because they don't live in the same world that we do. They are in it for the few dollars and dont want to question their "employer" who is sending them BPOS.
We as agents need to STOP and think about why we are doing BPOS, in my market if you are using non distressed comps for anything, you are not giving a true value of the property, period!
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You're correct LT. They're guidelines, but not requirements. An appraisal report must be USPAP compliant.
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