Very rude awakening by mortgage lender - home valuation - should I dispute? (Phoenix: fit in, foreclosures)

[Captain Bill]

Originally Posted by Zippyman

As for your previous post about BPO's having picture requirements, unless they're "scratch-n-sniff" pictures, they aren't telling the whole story. One property smells like a wet dog inside - what's the proper BPO "adjustment" for that? Can you get that info in a "drive by" appraisal? I think not...

Do not confuse the purpose of a drive by with the valuation of a property.

A drive by is not used to place a value on a home. It's typically used as a first look by the asset manager on an REO when the listing agent is assigned to go out and check to see if the home is occupied. It's only after several other tasks are complete that the first interior bpo for valuation is done.

A drive by is just a general assessment of the property and the community and a determination if someone is occupying the home.

You're correct that a picture does not tell the whole story. That's why descriptions are very important. With a sufficient number of photos and good descriptions, a good story can be told.

I take my own photos and have an assistant only do the raw data entry for the subject house and comps. I do the rest.

Currently I have two REO's in the pre-listing stages.

One is full of trash throughout the yard and inside the house, and what appears to be dog feces in one room, and something in a bucket under the sink that has a bad odor. Certainly the person taking the photos (me) smells the odor and reports it in the description.

It's usually cat urine in carpet that causes the caustic odor, and the cure for that is to change the carpet.

This pre-listing has a terrible odor, (not cat urine) and the carpets are far beyond cleaning. I have to do a bpo for it today, and it will be with the assumption that all the trash is removed, but the odor remains. They can't do a trash out yet because there is personal property there and they have to go through a legal process with that personal property.

It is a property that, in my opinion, should be marketed to a rehabber because there is too much work involved for the bank to get involved in trying to get it improved for marketing as a retail property.

While I know the condition of this house, I cannot get inside the Sold comps. Just like an appraiser I must make subjective decisions on which comps are most like the subject property and then rely on the mls photos and descriptions to make comparisons.

I have a pretty good knowledge of how different types of buyers think when approaching a property needing work.Since I'm also a rehabber, I know how most rehabbers would value the property, and I use that knowledge to arrive at an As Is value with the property being marketed to a rehab type investor.

If my bpo comes within 10% of the sale price, I'll be happy. I haven't started pulling comps yet, but my initial "guess" is this is going to be somewhere around 50-60k. I would love to hit the mark within 5%.

But wait, there's more!!!

If I get a $50,000 contract on this listing, I can do another bpo, and then I can be just as accurate as an appraiser.

Now that I know the sale price, all I have to do is find comps and make adjustments that will be right on the money at $50,000.

I have a lot of respect for appraisers and their knowledge. They know more about appraising than me. However, I would venture to say that if an appraiser were to appraise this property today, the way I'm having to do, that his/her value would not be any closer to the end sale price than mine.

[Zippyman]

Originally Posted by MN-Born-n-Raised

Great quote.

Putting it another way, if I took the exact same guy who did the BPO and compared his values (using only pictures) versus having him go in the house and neighborhood to get the entire experience, I'd expect several property values to differ more than 10%.

As soon as they reduced the fee so that it mandated a photographer says it all to me: there is a compromise in the quality or value. But I do appreciate the Capt's explanation as I feel better about BPO's than I did before.

I'd have to agree, the explanation helps, but the logic of saving money over a real appraisal doesn't wash - driving past homes to set a value is a silly concept, guaranteed to introduce major errors into valuation. When they drive past a house that's in better condition than others in the neighborhood they'll get a value well below market, and it'll sell fast - when they drive past a stinky, bombed-out shell, the value will be set too high, and the house will languish on the market until someone pulls the plug and takes a lowball offer just to get it off the books. Which is pretty much what is happening all over town right now...

[Captain Bill]

Originally Posted by Zippyman

I'd have to agree, the explanation helps, but the logic of saving money over a real appraisal doesn't wash - driving past homes to set a value is a silly concept, guaranteed to introduce major errors into valuation. When they drive past a house that's in better condition than others in the neighborhood they'll get a value well below market, and it'll sell fast - when they drive past a stinky, bombed-out shell, the value will be set too high, and the house will languish on the market until someone pulls the plug and takes a lowball offer just to get it off the books. Which is pretty much what is happening all over town right now...

Perhaps I didn't explain this properly; so I'll do it again.

• A drive by is NOT used to set valuation.
  
  
• The interior bpo is used to determine valuation.

The drive by is only used when the agent is first asked to determine occupancy. Before the bank/investor can proceed with the REO, they must determine if it's still occupied and start eviction proceedings if it is.

The Interior bpo is done using photos, descriptions, estimates of repair costs, with valuations in As Is condition and After Repair condition.
Sometimes the bank/investor will order a second interior bpo for confirmation.

The bank/investor sets the listing price
Neither the listing agent, nor the asset manager have control over the listed price.

• The agents provide the (interior) bpo(s) for valuation
• The asset manager gets another bpo if desired
• The asset manager gathers all the information
• S/he submits all that information to the bank/investor

The Sold comps are used the same way an appraiser uses them, with information from the mls sheets

After receiving all this information, the bank/investor determines the list price, which may or may not be what the bpo's have determined.

Because the investor may use a different value than the bpo's for the list price, the companies that hire agents for REO's grade them on the percentage of sale price to the bpo, and not the listed price.


I'm going to blow my own horn here and say that I have sufficient market knowledge and repair cost knowledge and valuation knowledge that I can (with all due respect to appraisers) estimate the current market value of a property as good as any appraiser.

I do it every day in working with my clients, my investments and the few REO's and short sales that I've listed

Also, current market value is never an absolute. It is a range, and will depend on the the needs and desires of the buyer and seller when brought together.

[Potential_Landlord]

Well, to sum it up for me: unfortunately the BPO is not too far off and the reality is that prices in Phoenix came down another >20% since we bought in December 2009. Phoenix real is unfortunately the poster child of the US housing bust (probably together with Vegas). This place has been hit hardest. Nowhere else has the building boom fueled a worse crash. Other places were probably more protected by building restrictions, coastal area advantages and what not.

For all of us, we have to bite our nails until the excess supply is worked thru and then once again new-built costs set the price. Does anybody dare a guess as to when that will be the case?

[MN-Born-n-Raised]

Originally Posted by Potential_Landlord

For all of us, we have to bite our nails until the excess supply is worked thru and then once again new-built costs set the price. Does anybody dare a guess as to when that will be the case?

I see things like this http://www.nytimes.com/2011/05/23/bu...ce=patrick.net and wonder if there really is a HUGE "shadow inventory" that people are talking about. Then I read that shadow inventory is exaggerated. So who should we really believe???

That link I posted certainly cherry picked one of the softest towns in AZ. El Mirage had an exodus of Hispanics leaving the state. But they used that town to discribe the entire Valley. They said things are still dropping. Really??? I know that is factually B.S. in this spring Phoenix area buying season.

So in summary, it's a guess because there is so much misinformation.

[Vlajos]

Originally Posted by las vegas drunk

If you owe 140k on your mortgage, and your house is worth 140k, how are you under water? I don't get it.

They put equity in the home. They are underwater.

[Vlajos]

Originally Posted by Potential_Landlord

Well, to sum it up for me: unfortunately the BPO is not too far off and the reality is that prices in Phoenix came down another >20% since we bought in December 2009. Phoenix real is unfortunately the poster child of the US housing bust (probably together with Vegas). This place has been hit hardest. Nowhere else has the building boom fueled a worse crash. Other places were probably more protected by building restrictions, coastal area advantages and what not.

For all of us, we have to bite our nails until the excess supply is worked thru and then once again new-built costs set the price. Does anybody dare a guess as to when that will be the case?

Exactly Phoenix and LV are pretty much the worst markets in the coutry. I feel bad for the OP.

[khuntrevor]

South Florida.......

[SOON2BNSURPRISE]

Originally Posted by Potential_Landlord

We bought our house in December 2009 during the first-time homebuyer frenzy for 180k in North Phoenix. Meanwhile, we paid down our mortgage to about 140k and I thought in my naivite I apply to eliminate PMI payments. So much for that - the lender came back to us with a valuation of 140k which puts us officially under water. They sent us a bunch of comps of just sold properties and currently on the market properties, a so called "BPO". Do you think a >20% drop over the last 17 months is realistic? Should I dispute? - I am almost freaking out. I thought the worst was over in 2009 but yet it is not.

Did you have a FHA loan? As far as I know you have to be in the home for a minumum of 5 years before FHA will eliminate the insurance. Also that is only if you do infact have 20% equity in the home. From what you are saying the value of your home declined from $180 to $140. Still that doesn't mean that you are underwater if your home is now worth $140 and you owe $140. You are just not in a position to get out from under the insurance.

[khuntrevor]

I do recall my dad getting a lump sum reimbursement check on his FHA mortgage--they made it retroactive. Soon2b may be spot on with the five year rule.