Real Estate Appraisal Forum

appraisersforum.com logo
The Premiere Online Community for Real Estate Appraisers!
 Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
 
 
Go Back   Appraisers Forum > Real Estate Appraisal Forums > Urgent - Help Needed
Register Help Our Rules Calendar Archives Mark Forums Read


Closed Thread
 
Thread Tools
  #1  
Old 03-03-2012, 11:35 PM
65076507 65076507 is offline
 
Join Date: Jan 2008
State: Maryland
Professional Status: Certified Residential Appraiser
Posts: 287
Default Arms-Length vs Non-Arms-Length?

This has been covered on other threads but there never seems to be agreement.

My friend who is Certified in Maryland and I have this debate that has been going on for about 6 months now and I need help. The debate is this:

I say just because a comp is an REO does not mean it is Non-arms-length. It all depends on the situation. If it is priced competitively, had reasonable exposure, etc.....and meets the definition of an arms-length transaction then it is in fact arms-length. He thinks that because it is REO that automatically means it can NOT be arms-length. Can you guys and gals help us with this debate??????
Sponsored Links

  #2  
Old 03-04-2012, 12:01 AM
65076507 65076507 is offline
 
Join Date: Jan 2008
State: Maryland
Professional Status: Certified Residential Appraiser
Posts: 287
Default

I just wanted to add that because it is REO his argument is it is a distressed sale and thus not arms-length. Is it safe to assume every REO is distressed. I seen plenty of REO properties that are priced at market value, if not higher, and they decline offers coming in at 90% of list price. I am just not convinced that it is safe to say every REO sale means not arms length every single time. ANy thoughts?
  #3  
Old 03-04-2012, 12:46 AM
Punalava Punalava is offline
 
Join Date: Jul 2005
Location: Hawaii
State: Hawaii
Professional Status: Certified Residential Appraiser
Posts: 357
Lightbulb

You're right and he's wrong.
  #4  
Old 03-04-2012, 12:51 AM
CindyR CindyR is offline
 
Join Date: Oct 2003
State: Arizona
Professional Status: Certified Residential Appraiser
Posts: 630
Default

I think your buddy has forgotten that the overriding answer to every apprasial questions is 'it depends'. Yes - an REO sale can be a distressed sale. Here in AZ we've got more REO sales than the proverbial carter's got peanuts. They are setting the market and buyers are happily snatching them up based on condition and features anad without regard to seller characteristics. Often they sell higher than similar owner-sales and often they sell lower. But the lender can hold them in inventory or offer them at auction or rent them or do all kinds of things with them. They decide to sell them when they decide to sell them and they are often not distressed.
  #5  
Old 03-04-2012, 12:57 AM
65076507 65076507 is offline
 
Join Date: Jan 2008
State: Maryland
Professional Status: Certified Residential Appraiser
Posts: 287
Default

Thanks Puna And Cindy,

That's What I Thought. It Is Silly To Say Every Reo Is Distressed When Every Situation Is Different. Thanks Guys! I Appreciate The Comments.
  #6  
Old 03-04-2012, 05:32 AM
J Grant's Avatar
J Grant J Grant is offline
 
Join Date: Dec 2003
State: Florida
Professional Status: Certified Residential Appraiser
Posts: 19,836
Default

Your friend is wrong and in any case, distressed sale and arms length are still differen concepts, and people exchange the word "distress" sale and REO sale interchangeably and they are not the same.

The UAD is also at fault because they use the word arms length incorrectly, to set the sales apart.
  #7  
Old 03-04-2012, 07:17 AM
Randolph Kinney Randolph Kinney is offline
 
Join Date: Apr 2005
Location: SoCal
State: California
Professional Status: Certified Residential Appraiser
Posts: 18,404
Default

arms-length transaction
A transaction between unrelated parties under no duress.


Duress
In jurisprudence, duress or coercion refers to a situation whereby a person performs an act as a result of violence, threat or other pressure against the person. Black's Law Dictionary (6th ed.) defines duress as "any unlawful threat or coercion used... to induce another to act [or not act] in a manner [they] otherwise would not [or would]". Duress is pressure exerted upon a person to coerce that person to perform an act that he or she ordinarily would not perform. The notion of duress must be distinguished both from undue influence in the civil law and from necessity.

Duress has two aspects. One is that it negates the person's consent to an act, such as sexual activity or the entering into a contract; or, secondly, as a possible legal defense or justification to an otherwise unlawful act.
  #8  
Old 03-04-2012, 08:39 AM
residentialguy's Avatar
residentialguy residentialguy is offline
 
Join Date: Mar 2009
State: Minnesota
Professional Status: Certified Residential Appraiser
Posts: 13,650
Default

Quote:
Originally Posted by 65076507 View Post
Thanks Puna And Cindy,

That's What I Thought. It Is Silly To Say Every Reo Is Distressed When Every Situation Is Different. Thanks Guys! I Appreciate The Comments.
Here is where you and Cindy are wrong. You just changed gears from non arms length to distressed. Every REO is a distressed sale, as is a short sale. That doesn't mean that REOs are not an arm's length sale, however. If they were all non-arm's length, they could not be considered. They can be arms length sales. However, they are distressed sales and this distress often results in a market reaction that must be considered.
__________________
Due diligence doesn't mean you get all the answers...it means you've done your job!
  #9  
Old 03-04-2012, 08:51 AM
Terrel L. Shields's Avatar
Terrel L. Shields Terrel L. Shields is online now
 
Join Date: May 2002
Location: Springtown, AmeRica
State: Arkansas
Professional Status: Certified General Appraiser
Posts: 37,663
Default

Quote:
I say just because a comp is an REO does not mean it is Non-arms-length. It all depends on the situation.
Why? Is that in the definition of Arm's length? I could fire my rifle into the air and the bullet kill a deer....it doesn't mean I aimed the gun.

Banks do not willingly own property. They are not a typically motivated seller. They can, often are, under mandate from the regulators to dispose of their REO assets in an orderly manner.

Short sales. Typically, someone is underwater...well underwater. They, the bank, and the Realtor all understand that they are underwater and offer it for a MARKET PRICE, i.e.- Market Value. They KNOW they cannot get more. They MIGHT get an offer for less but say they manage to sell that property at exactly MARKET VALUE....that still does not make the transaction "arm's length". The transaction is non-arm's length even when the price is "right." Exposure to the market is not the proper test for "arm's length"... Arm's length relates to the duress and pressure the seller and/or buyer is under. Frankly, in the boom, the whip hand was the seller and many buyers paid above "market value" because appraisers rubber stamped the market pricing which was inflated. Buyers felt compelled to make offers on properties that they knew was "high" - many admitted it - but were under the mistaken idea that the NAR promoted for years... "Real Estate never drops in price"....They thought they would "come out" in the long run.

These concocted deals that were 110% loans etc etc. were not "arm's length" and short sales and REOs were not "arms' Length" no matter if the transaction price is the same as "Market Value".. The two terms are not synonymous.

Likewise the REO and short sale is a duressed sale, thus can never be "arm's length" regardless that it might be a good proxy for market value in that the pricing is similar to that had the house not been underwater and had been offered for sale at market value.

That's my story and I'm sticking to it.
__________________
I yearn to say "goodbye" - Madonna
  #10  
Old 03-04-2012, 08:55 AM
residentialguy's Avatar
residentialguy residentialguy is offline
 
Join Date: Mar 2009
State: Minnesota
Professional Status: Certified Residential Appraiser
Posts: 13,650
Default

Good post, Terrel

I think it's important to use widely defined terms the way that the user uses them so that it is not misleading to them. As JG pointed out, UAD obviously sees a distintion between AL and REOs, Shorts, etc.
Even though we may not agree with UAD formatting, that's what we are working with and that's the language we have to speak.
__________________
Due diligence doesn't mean you get all the answers...it means you've done your job!
Sponsored Links

Closed Thread


Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Forum Jump




Copyright © 2000-, AppraisersForum.com, All Rights Reserved
     Terms of Use  Privacy Policy
AppraisersForum.com is proudly hosted by the folks at AppraiserSites.com

Fastest Way to Find a Real Estate Appraiser Enter Zip Code:
Partner Sites:
AppraiserUSA.com - National Appraiser Directory AllDomainsUSA.com - Domain Name Registration
DeadbeatListings.com - Deadbeat ListingsAppraiserSites.com - Web Hosting for the Professional Real Estate Appraiser
Find FHA Appraisers - FHA Appraiser Search Commercial Appraisers - Commercial Appraiser Search
Relocation Appraisal - Find Relocation Appraisers Domain Reseller - Business Opportunity
Home Security Buzz - Home Security Info Radon Testing - Radon Gas Info
My Medicare Forum - Medicare Info Stop Smoking Help - Help Quitting Smoking
CordlessPhoneStore.com - Great Cordless Phones AndroidTabletCity.com - Android Tablet Computers

Follow AppraisersForum.com:          Find us on Facebook            Follow us on Twitter


All times are GMT -5. The time now is 08:35 AM.

SiteMap: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93