Project Results

The hypothesis : there is a correlation between either the Auditor's appraised value (which is not market value) and the foreclosure appraisal value (which is supposed to be at market value), or between the outstanding loan balance and the foreclosure appraisal value.

The procedure : both the Kenmore (North) and Summit Lake neighborhoods were searched via a polygon map search for REO sales which took place in 2007. The sales were cross-checked with the Summit County Common Pleas Court Records and the Summit Count Sheriff's Sales data. The data was entered in an Excel spreadsheet, and included the names of the appraisers used by the Sheriff, and also included pre- and post REO sales data where it was deemed pertinent. The ratios of appraisal:auditor's appraisal for the prior tax year, the appraisal:judgment amount, and the appraisal:REO sales price were calculated, along with the range of ratios, the mean, median, and mode values for the ratios, and one standard deviation from the mean of the ratios.

Unfortunately, before the project began, no confidence level was chosen for rejecting the null hypotheses, namely, that no correlation would be found. The following items must be considered :

• standard practice allows for a variation of +/- 5% between the value opinions provided by two or more individual appraisers before serious questions about the methodolgy or data are raised


• no standard ratio exists for determining the amount of a loan to be made relative to the appraised value (underwriting guidelines which allow 100% financing have made such determinations impossible)


• the REO sales price does not meet the definition of market value as set forth in 12 CFR Part 34, but because all of the REO sales had open market exposure in the MLS, there is some reason to treat those sales as though they approximate the market value for REO sales as a class

With these things in mind, the percentage data was tabulated as follows :

	Appraisal: Auditor	Appraisal: Judgment	Appraisal: REO SP
Minimum Ratio	56.26	31.36	114.62
Maximum Ratio	165.12	247.81	1500.00
Mean Ratio	107.56	101.96	366.34
Median Ratio	104.12	98.63	276.00
Standard Deviation	15.92	28.29	238.74

Conclusion : The range of the ratios was quite wide, and only the median ratio of the appraisal:judgment amount was below 100%. There does, however, seem to be a very close correlation in the median ratio of the appraisal to the judgment amount (within 2% either direction). It would thus be interesting to know if the appraisers had knowledge of the judgment amount prior to providing their analysis.

The fact that the mean and median ratios for the appraisal to the eventual REO sales price are 366% and 276% respectively is an area of concern. It can be accepted that the appraised value prior to the foreclosure would be higher than the REO sales price, since there would be both effects present regarding the condition of the foreclosed home, and the fact that the REO sale would take place under conditions of duress.

Because it was possible to separate REO sales from non-REO sales in the analysis, there was some other very interesting stuff that came out of this exercise. More Later.