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  #1  
Old 11-28-2011, 06:17 PM
PS111222333444 PS111222333444 is offline
 
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State: Washington
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Default Short Sale / Market Value

I'm re-appraising a mostly shell condition older mixed-use warehouse/office with an illegal apartment unit on the 2nd floor. This is a user property and market sales of similar shell properties were analyzed and a value of $320,000 was reconciled to last May (6 months ago). The comparable properties were purchased by users and readapted for other commercial or industrial uses. The lender of the subject is asking for a new appraisal as the property is under contract for $270,000 in a short sale situation. My search of new sales comparables resulted in three new sales which mostly supports the same value of $320K. There is one REO sale at the bottom of the indicators, which is attributed to the sellers (bank owned via Trustee’s Sale) motivation to reduce financial loss.
The MAI which I contract with typically insists we reconcile to a pending sales price. I don’t generally agree with this, unless market data also supports it – but he would absolutely never value above a contract sales price. He feels that this pending short sale price is reflective of market, which I do not agree with. This property has been listing numerous times over the past five years. The seller is way under water with the lender and foreclosure is eminent.
I appreciate any comments on why this sale should or shouldn’t be construed as a pending market transaction. I also appreciate comments on why lenders re-appraise just prior to a short sale or prior to a trustee’s sale at foreclosure. I believe it sets a baseline for loss write offs or what they bid at a trustee’s sale.
Many thanks.
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  #2  
Old 11-28-2011, 06:26 PM
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CANative CANative is online now
 
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A short sale is simply an agreement between the borrower and his lender to sell for less than the outstanding balance of the loan. The contract means almost nothing.

I agree with you and disagree with the MAI.
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  #3  
Old 11-28-2011, 06:50 PM
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I agree with Can. Your MAI doesn't seem to understand short sales too well. Go with what the market supports. Short sale selling under market value...gee, who woulda thunk!
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  #4  
Old 11-28-2011, 07:28 PM
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J Grant J Grant is offline
 
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Quote:
Originally Posted by PS111222333444 View Post
I'm re-appraising a mostly shell condition older mixed-use warehouse/office with an illegal apartment unit on the 2nd floor. This is a user property and market sales of similar shell properties were analyzed and a value of $320,000 was reconciled to last May (6 months ago). The comparable properties were purchased by users and readapted for other commercial or industrial uses. The lender of the subject is asking for a new appraisal as the property is under contract for $270,000 in a short sale situation. My search of new sales comparables resulted in three new sales which mostly supports the same value of $320K. There is one REO sale at the bottom of the indicators, which is attributed to the sellers (bank owned via Trustee’s Sale) motivation to reduce financial loss.


The MAI which I contract with typically insists we reconcile to a pending sales price.

??? He never heard that an appraiser should not appraise to a predetermined value? (am sure he knows, but this character seems determined to make a sale price work if possible)

I don’t generally agree with this, unless market data also supports it –

Same here, when market data supports sales price, sure.

but he would absolutely never value above a contract sales price.

?? I have often appraised above sales contract prices, and we are not supposed to appraise either "up" nor "down" to meet sales contract prices. They are desrve consideration, but not supposed to drive the appraisal.

He feels that this pending short sale price is reflective of market, which I do not agree with. This property has been listing numerous times over the past five years. The seller is way under water with the lender and foreclosure is eminent.

If you feel the comp support a higher value, then that is your opinion. However, what price did the REO comp sell for? How much weight did you give it? Just because it sold at low end of price range does not mean it deserves the least weight...I would look at pending sales and listings and if any are in contract, as well as whether the prices are declining or not. The fact that you have some short sale and REO activity in your area means it is not a healthy market, so I would not discount that activity.

I appreciate any comments on why this sale should or shouldn’t be construed as a pending market transaction. I also appreciate comments on why lenders re-appraise just prior to a short sale or prior to a trustee’s sale at foreclosure. I believe it sets a baseline for loss write offs or what they bid at a trustee’s sale.
Many thanks.
RE, I don't give as strong weight to a subject pending transaction, and sounds like you don't either...is this MAI signing as your supervisor? IF not, then it has to be your opinion . I am not a commercial appraiser, so don't know if your clients have a different motivation for ordering an apprasial when there is a short sale offer. But in res, usually the client (the lender) would order an appraisal for a short sale offer to see if they should accept the offer or not. Is the offer close to MV, below or above it? Lenders may have a formula they work with, such as any offer within 10% of MV, they might accept, for example.

They also could be ordering two appraisals, and yours is the second, or they ordered a commercial BPO and will reconcile the reports.

Regardless of why they want it, if it is a MVO apprasial then that is what you need to give them... I disagree with Res Guy regarding whether REO or short sales can represent MV-in declining markets they can, so you need to analyize your market, the trends, the listings etc.

Hope our comments were helpful!

Last edited by J Grant : 11-28-2011 at 07:46 PM.
  #5  
Old 11-28-2011, 07:41 PM
NorthTexValuation NorthTexValuation is offline
 
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State: Texas
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Quote:
Originally Posted by PS111222333444 View Post
1. The MAI which I contract with typically insists we reconcile to a pending sales price. I don’t generally agree with this, unless market data also supports it – but 2. he would absolutely never value above a contract sales price. He 3. feels that this pending short sale price is reflective of market, which I do not agree with. This property has been listing numerous times over the past five years. The seller is way under water with the lender and foreclosure is eminent. I appreciate any comments on why this sale should or shouldn’t be construed as a pending market transaction. I also appreciate 4. comments on why lenders re-appraise just prior to a short sale or prior to a trustee’s sale at foreclosure. I believe it sets a baseline for loss write offs or what they bid at a trustee’s sale.
Many thanks.
Maybe the most ignorant MAI I have ever heard of.

1. An asinine requirement. You are appraising the property, not the contract.

2. If this is so, I would wager he has submitted numerous appraisal reports that are misleading as to market value because "short sales" sell below Market Value all the time.

3. Perfect example why this "pending short sale" is NOT reflective of Market Value. Seller is under extreme duress, therefore it cannot meet the definition of Market Value.

4. You partially answered your own question. Also, a lot of times there is not a fully executed contract when the appraisal is ordered but just a signed offer from a prospective buyer. The seller (lender) wants to know if the offer is acceptable based on the current appraisal before signing the contract.

My only question is why are you still working with this totally incompetant MAI?

Last edited by NorthTexValuation : 11-28-2011 at 08:53 PM.
  #6  
Old 11-28-2011, 09:28 PM
PL1957 PL1957 is online now
 
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I love it - four residential appraisers in agreement that the big bad MAI doesn't know what he's doing.

In my practice, you better have a really good reason for walking away from the strongest piece of market evidence you can find - a signed purchase agreement between a willing buyer and a willing seller. You can call it a "target" if you wish - I call it a sale that doesn't require any adjustment.
  #7  
Old 11-28-2011, 09:39 PM
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J Grant J Grant is offline
 
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Quote:
Originally Posted by PL1957 View Post
I love it - four residential appraisers in agreement that the big bad MAI doesn't know what he's doing.

Ever heard the saying, MAI, " Made As Instructed"? It applies to a minority...not most of course, but a well known saying that has been around for decades, regarding the few whose ethics does not match their expertise. License level does not equate to ethics. The cert general who posted this does not agree with the MAI regarding contract prices, if you read the OP post.

In my practice, you better have a really good reason for walking away from the strongest piece of market evidence you can find - a signed purchase agreement between a willing buyer and a willing seller. You can call it a "target" if you wish - I call it a sale that doesn't require any adjustment.
One of the most ridiculous sayings I have ever heard. It is rare to hear someone who appraises to meet contract values actually boast about it.
  #8  
Old 11-28-2011, 09:41 PM
PL1957 PL1957 is online now
 
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Quote:
Originally Posted by J Grant View Post
One of the most ridiculous sayings I have ever heard. It is rare to hear someone who appraises to meet contract values actually boast about it.
You've cut me to the quick. I'll go hang my unethical head in shame ...
  #9  
Old 11-28-2011, 09:42 PM
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residentialguy residentialguy is offline
 
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Quote:
Originally Posted by PL1957 View Post
In my practice, you better have a really good reason for walking away from the strongest piece of market evidence you can find - a signed purchase agreement between a willing buyer and a willing seller.

Yes there is a really good reason...they even labeled it "Short Sale" so that the most inept appraiser could see that it's not a market sale as defined in that presumed sale in your form.
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  #10  
Old 11-28-2011, 09:45 PM
PL1957 PL1957 is online now
 
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Quote:
Originally Posted by residentialguy View Post
Yes there is a really good reason...they even labeled it "Short Sale" so that the most inept appraiser could see that it's not a market sale as defined in that presumed sale in your form.
Last time I checked "short sale" meant that the contract price didn't cover the existing debt. I'm not sure what market value definition you're working with, but reference to the existing debt level doesn't appear in mine.
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