Appraisal Reporting Requirements

Circular No.:

2010-20-E

Date:

May 28, 2010

Distribution:

Staff and Fee panel Appraisers

Effective:

May 28, 2010

When analyzing the market and selecting comparables, LandSafe appraisers must consider all relevant market data including Real Estate Owned (REO) property sales, listings and Short Sales. LandSafe appraisers should be mindful of any market data that could impact a subject property’s market value.

Informed and prudent purchasers will not normally pay more for a residential property than:

• The price of an existing residence with the same general features and appeal in the same market area
• The cost of purchasing a similar sized lot and constructing a home with the same general features and appeal in the same market area

Consideration of REO Sales Data

Appraisers sometimes dismiss sales and listings described as foreclosure properties in the local MLS as potential comparables. This market data could be dismissed when an appraiser deems that a sale identified by MLS as a foreclosure is not an arms-length transaction. However, any sales or listings that are noted in MLS as a foreclosure are actually
REO properties owned by a financial institution that are subject to the same market exposure as other non-REO, MLS listings.

REO properties may or may not be in a distressed condition, but if an REO property has been exposed to the open market, is representative of the type of property sold in the market area, or represents a significant percentage of sales and listing activity in the market area, it should be considered as a potential comparable.

LandSafe appraisers should be familiar with all terms used by real estate agents and brokers in their local MLS. Whether called an REO or foreclosure in the listing, the appraiser must determine the relevance of the market data by considering days on market, property condition, list price relative to competitive properties, price reductions and the level of motivation to sell an REO property.

Consideration of Short Sales Data

Sales called Short Sales or Pre-foreclosures could very well be less than arms-length transactions; however, their impact and contribution on market area trends should be analyzed and reported.

If Short Sales are a part of the subject market, details of these transactions must be researched and analyzed. The appraiser must determine if the property was exposed to the open market and sold in a manner similar to an arms-length transaction to determine if the sale should be considered as a potential comparable.

Foreclosure Activity

Although true foreclosures, typically recorded as a Trustee Deed, are not arms-length transactions, these transfers should be noted and briefly analyzed.

Foreclosure activity impacts the market because the property being foreclosed will ultimately be added to the real estate supply. The subsequent increase in overall residential supply will increase competition. If a large amount of bank-owned residential property is added to the market, the price and market value of all competitive property could be negatively impacted.

In addition, appraisers should become familiar with local delinquent mortgage and loan default rates, because the properties involved will also eventually increase the supply of real estate, and potentially impact market value for all residential property in the market.

If by analysis of factual data, one can establish that there are a large number of foreclosures in the market area that have not subsequently been marketed or sold (sometimes referred to as Shadow Inventory), the appraiser should consider the impact this may have on the market value of the subject property.

Source and Verification of Comparables

Please remember that comparables selected and presented in the appraisal must be independently verified by a disinterested source.