Short sale comparables?

[moh malekpour]

And where did I say "10%". You may have inferred 10% from my numbers, i.e., $150,000 to $135,000, but I never said 10%. In fact, I have never found a percentage-based short sale adjustment. It is usually lump sum. So you easily could have said $815,000 but it benefited your rhetoric to jump on the 10%. You read into that. I have said and will continue to say because it is what I have seen, the adjustment could be $0, $5,000, $10,000, $15,000, and much higher. It all depends on what is extracted.

You didn’t say 10% and you didn't have to say but you said $135,000 and $150,000 and the different between $135,000 and $150,000 is 10%.. I know that you have never found a percentage because there has been any to find. There is not much different but a sale price or asking prices are not perfect price to be exact. As a matter of fact there is a slightly different listing prices amongst 8 listings in my subdivision. Although they are all model match with the same conditions and all are short sales or REOs but their listing prices are slightly different ranging from $772,000 to $799,000 and may sell in different prices with the same rage. These sales and listing prices are not perfect because the real estate market is not perfect and you cannot get fixated on those differences. But you always have to follow a common sense, logic and reasonableness.

Imagine for a moment that you are a broker as you said you used to be and you have a buyer who is interested to buy a home in my subject subdivision. After interviewing your buyer and making sure that he is a serious homebuyer, you search the MLS and find that there are 9 listings there. 8 of them are short sales and REO with the listing prices of $775,000 to $799,000 and only one is a private listing for $880,000. As a broker, you are supposed to be honest to your buyer so you print all of those 9 listings and take your buyer to the subdivision and show him the interior and exterior of all those homes. As a broker you don’t tell your buyer which one to buy or not to buy but you answer any question he has honestly and tell him anything you know about those homes. After you showed him all of those homes, you would ask him what does he think and what he wants to do. Because all those homes are the same, his answer would be that they are all good and he likes them all the same but he is curious to know why one is $80 or $50,000 higher than others. Your honest answer would be that those 8 listings are REO and short sale listings but the one with higher price is a private listing. You tell him about the different between REO, short sale and private listings.
You tell him that, in the REO purchase, he doesn’t meet the seller who is the lender eye to eye. When he signs the contract, it will go digitally to the lender and if the lender accepted and signed, it will come back right away and then the escrow will open but if he buy it from the private homeowner, he might be able to meet the homeowner and chat with him althoug this is not true all the time. In private transactions sometimes, even the buyer agent may not be able to meet the home owner. Usually it is the listing agent who takes care of taking the purchase contracts back and forth.
Then you tell him about the short sale listing that the contract is between him and the homeowner but it needs the approval of the mortgage holder and it may take a month or two to get the approval.
And finally you tell him about the traditional home buying
After you educated your buyer who is interested to buy one of those available 9 listings in my subject subdivision, which one of those 3 options do you think a typical buyer is going to select and why:
Option 1-Buy the REO listing for $80,000 less but not meet the homeowner because the homeowner is gone, the home is vacant and the owner is the bank now?
Option 2-Buy it form the homeowner but with the agreement of the bank and possibly waiting time for an extra one or two months but pay $80,000 less?
Option 3-By it from a private homeowner at $80,000 more?

Do you think he is going to choose option 3 because if he chooses option 1, he is going be shameful or feel guilty or scared of buying an REO?
. Or do you think your typical buyer has loaded his furniture in the truck driving around to buy a home on spot and move in right away and is willing to pay $80,000 or $50,000 because he is on street and cannot wait one extra month to move in.

I am trying to find the logic for your stigma theory on short or REO sales that says typical buyers are willing to pay more for non-REO or non short sales when everything else is equal.

Please listen to the news and watch the senate banking committee who are trying to pass a bill to stop foreclosures and short sales because those overwhelming REOs and short sales are bringing prices of other homes in the neighborhood down.

Are you ignoring the effect of predominant REOs and short sales in the declining market?
Do you think that only the value of REOs and short sales are coming down in this market but other homes that are not REO or short sale are immune from declining?

I am a homeowner myself and hate to see the value of my property to come down because of those REOs and short sales in my neighborhood but I cannot hide my head in the sand and say that they have no effect on the value of my property because my property is not REO or short sale if I decided to sell it today.
The real estate markets in some areas of California, Florida, Nevada and Arizona is dominated by REOs and short sales and that is what it is and no one can stop it.

 

[Mztk1]

I don't know why I am not getting my message across. I think you have stereotyped me as a Skippy because I will leave my neighborhood for comps when all the characteristics of my subject are not bracketed from sales within the project. You are misjudging me, Moh. There is nothing, and I mean nothing, that isn't common sense or simple reasoning that I am saying. There is nothing creative, and there is nothing that is going to provide an inflated opinion of value for the sake of hitting a number, etc.

Your options:

Option 1-Buy the REO listing for $80,000 less but not meet the homeowner because the homeowner is gone, the home is vacant and the owner is the bank now?
Option 2-Buy it form the homeowner but with the agreement of the bank and possibly waiting time for an extra one or two months but pay $80,000 less?
Option 3-By it from a private homeowner at $80,000 more?

These are false choices.

You need to add at least two more.

1. Make an offer to the private homeowner at the same price as the REOs or some price in between, and see if it is accepted or countered with an acceptable price.

2. Go to a competing project.

Also, you state "Typical Buyer" as if I am supposed to axiomatically know what that means. I don't. If my typical buyer is an investor, the best option is again not even on the table. Make a low ball contract on all REO and short sale properties with the contingency that if any other contract is accepted while others are waiting approval, the ones waiting approval are null and void, and that all contract offers and counter-offers must be dated and time stamped or they are voidable by the buyer as well. If that is not allowed in your local area, make a low offer on all bank-influenced sales with a 20 day investigation period beginning the day after contract accepted that gives the buyer the right to back out. You can low ball a bank without fear of offending them.

Do you think he is going to choose option 3 because if he chooses option 1, he is going be shameful or feel guilty or scared of buying an REO?
. Or do you think your typical buyer has loaded his furniture in the truck driving around to buy a home on spot and move in right away and is willing to pay $80,000 or $50,000 because he is on street and cannot wait one extra month to move in.

Here are you simply being disingenuous and snide. If you think I am a moron or an underhanded Skippy, get those presuppositions out of your head.

There is no shame or guilt. The fact is there are buyers who are non-investor buyers that can make up a good part of a buying market. And very often there is a reluctance by some of these markets to buy or even look at an REO or short sale. It doesn't matter that they don't meet the original owner. These owners are just not as interested as you are from that point of view. Whatever the percentage of such buyers is (and in the "family-market" where mom typically makes the final decision on what house to buy it may be around 50%) that number of buyers shrinks from your buying pool, which might be refilled by investor buyers looking for a bargain. When you lose the better market and pick up the bean-counter market your are going to see a reduction in price.

As for having the furniture in the truck or sleeping on the street, come on Moh. The fact is a lot of buyers (not investor buyers) have a specific time they want to move into a house. It doesn't mean they always will, but they have a goal. If they know the likelihood of that goal is greatly reduced for this $800,000 property, they may elect to pay $815,000 for another, or even $825,000, if it means the kids are in school at the start of the school year and they time everything right relieving a lot of stress.

I am trying to find the logic for your stigma theory on short or REO sales that says typical buyers are willing to pay more for non-REO or non short sales when everything else is equal.

No you are not. You are desparately trying to prove I don't know what I am talking about. If you were looking for the logic you'd have seen it long, long ago.

Please listen to the news and watch the senate banking committee who are trying to pass a bill to stop foreclosures and short sales because those overwhelming REOs and short sales are bringing prices of other homes in the neighborhood down.

Once again, this is treating me like Skippy - As if I don't follow real estate trends. Heck, I got XM and Sirius primarily for C-SPAN radio, the BBC and international radio. You simply are not reading what I write. I will repeat, in paraphase fashion, what I said elsewhere. A privately owned house's value will be reduced by REO and short sale properties. If private sales were selling for $150,000 and a bunch of REOs come on the market at $120,000, it very likely that the privately owned sales will fall somewhere between $120,000 and $150,000. It is also possible, but slightly less so, that the value of the private sales will fall directly in line with the others. In my last post I even showed you examples of where short sales sold low and then private sales sold afterwards, in the same project, for much higher. But those private sales were still below the levels they were at a year ago.

Are you ignoring the effect of predominant REOs and short sales in the declining market?
Do you think that only the value of REOs and short sales are coming down in this market but other homes that are not REO or short sale are immune from declining?

Again, Moh, I am not Skippy. YOU ARE THE ONE IGNORING DATA IN THE MARKET NOT ME. ALL I SAID WAS RESEARCH THE MARKET TO SEE IF THERE IS AN EFFECT FOR THE DIFFERENCE. You are dimissing the possibility of there being a market reaction out of hand and you keep going back to the 10%, or $80,000 to prove your point.

No where, not in one place I have ever written, have I made an argument that any house is immune from declining. I make market adjustments all the time.

I am a homeowner myself and hate to see the value of my property to come down because of those REOs and short sales in my neighborhood but I cannot hide my head in the sand and say that they have no effect on the value of my property because my property is not REO or short sale if I decided to sell it today.

My house has dropped from about $620,000 to about $450,000. I am not in denial. Again, you are making me into someone I am not based on your own prejudice.

 

[moh malekpour]

I don't know why I am not getting my message across. I think you have stereotyped me as a Skippy because I will leave my neighborhood for comps when all the characteristics of my subject are not bracketed from sales within the project. You are misjudging me, Moh. There is nothing, and I mean nothing, that isn't common sense or simple reasoning that I am saying. There is nothing creative, and there is nothing that is going to provide an inflated opinion of value for the sake of hitting a number, etc.

Jim,
You are getting your message across very well and it is telling me that I have hurt your feeling. I am sorry I didn’t mean to do that. I never intended to insult you and I never ever thought that you are a Skippy. As a matter of fact, I thought you are very intelligent who is obsessed to make an imperfect real estate function a perfect one. I thought you are just a perfectionist who trys everything even if it doesn't work but we all got to try our best.

These are false choices.

You need to add at least two more.

1. Make an offer to the private homeowner at the same price as the REOs or some price in between, and see if it is accepted or countered with an acceptable price.

I agree with that but it is up the buyer to decide not you as a broker. The buyer has already shown an interest to buy a home in that project and has seen nine homes which all are similar. As a broker, you let him to decide which one he likes to make an offer. He already knows that the private one is asking for more and he knows that what is the advantage of buying from the private one. If he wants to offer the price of REO or short sale listings to the private owner. let him to give it shot and see what happens. If he is willing to offer private owner 10 or 5% more than short sale or REOs listing prices, then it is up to him.

2. Go to a competing project.

The buyer is interested to buy a home in my project. after showing him 9 listings, you should ask him what was his thought and what he wanted to do. If he said that he is not interested in those 9 listings and wants to see other homes, then you take him to other project. You just don’t make a decision for him unless he asks you to do so

Also, you state "Typical Buyer" as if I am supposed to axiomatically know what that means. I don't. If my typical buyer is an investor, the best option is again not even on the table. Make a low ball contract on all REO and short sale properties with the contingency that if any other contract is accepted while others are waiting approval, the ones waiting approval are null and void, and that all contract offers and counter-offers must be dated and time stamped or they are voidable by the buyer as well. If that is not allowed in your local area, make a low offer on all bank-influenced sales with a 20 day investigation period beginning the day after contract accepted that gives the buyer the right to back out. You can low ball a bank without fear of offending them.

I didn’t bring the typical buyer and investor to the plate, you did. I don’t think, there are many investors interested to buy those homes in that subdivision and in that area. These are not fixer upper homes suitable for investors to buy and repair and sell them for profit. Renters do not dominate the area either. These homes are in very good conditions with no repairs needed at all. They are all attracted to the JOE six pack homebuyer. The only thing about them is that they are short sales and REOs. I don’t know how long is going to take to get rid of them as there are more in the pipeline coming up soon but until they are there, the value of the private homeowner is going to be about the same unless the JOE six pack sees any different between them and the private homeoenr's home.

Here are you simply being disingenuous and snide. If you think I am a moron or an underhanded Skippy, get those presuppositions out of your head.

Now, you are hurting my feeling and accusing mr that I think you are moron or Skippy. As I said earlier, I am not thinking that you are moron or Skippy, I think you are intelligent and perfectionist. .

There is no shame or guilt. The fact is there are buyers who are non-investor buyers that can make up a good part of a buying market. And very often there is a reluctance by some of these markets to buy or even look at an REO or short sale. It doesn't matter that they don't meet the original owner. These owners are just not as interested as you are from that point of view. Whatever the percentage of such buyers is (and in the "family-market" where mom typically makes the final decision on what house to buy it may be around 50%) the number of buyers shrinks from your buying pool. In addition, there is a segment that is out looking for investment deals. The first place they look is at that REO and short sale pool. When you lose the better market and pick up the bean-counter market your are going to see a reduction in price.

As for having the furniture in the truck or sleeping on the street, come on Moh. The fact is a lot of buyers (not investor buyers) have a specific time they want to move into a house. It doesn't mean they always will, but they have a goal. If they know the likelihood of that goal is greatly reduced for this $800,000 property, they may elect to pay $815,000 for another, or even $825,000, if it means the kids are in school at the start of the school year and they time everything right relieving a lot of stress.

When you get to the psychology of buying and selling, then everything goes. I used to look at everything from its psychological point of view but I stop doing that.

No you are not. You are desparately trying to prove I don't know what I am talking about. If you were looking for the logic you'd have seen it long, long ago

I am disappointed that you think that way.

Once again, this is treating me like Skippy - As if I don't real estate trends, etc. You simply are not reading what I write. I will repeat, in paraphase fashion, what I said elsewhere. A privately owned house's value will be reduced by REO and short sale properties. If private sales were selling for $150,000 and a bunch of REOs come on the market at $120,000, it very likely that the privately owned sales will fall somewhere between $120,000 and $150,000. It is also possible, but slightly less so, that the value of the private sales will fall directly in line with the others. In my last post I even showed you examples of where short sales sold low and then private sales sold afterwards, in the same project, for much higher. But those private sales were still below the levels they were at a year ago

Again, I am sorry that you think I treat you like Skippy. It was not and is not my intention. I was serious about the subject and was seriously disagree with your idea and wanted to get to the bottom of it because it was important to me.

Again, Moh, I am not Skippy. YOU ARE THE ONE IGNORING DATA IN THE MARKET NOT ME. ALL I SAID WAS RESEARCH THE MARKET TO SEE IF THERE IS AN EFFECT FOR THE DIFFERENCE. You are dimissing the possibility of there being a market reaction out of hand and you keep going back to the 10%, or $80,000 to prove your point.

No where, not in one place I have ever written, have I made an argument that any house is immune from declining. I make market adjustments all the time.

I don’t think either of us is Skippy. You have a different opinion from mine and we have two different markets. I was trying to motivate other appraisers to participate on this subject and get a consensus. You didn't say that non REO or non short sale homes are ammune from declining but when you say that buyer is willing to pay more for them than REO or short sales when everything else is equal, it indicates that their prices are not going to be affected by REO or short sale. You might be right to say that they could have some effect but not a full effect. I agree with that but it all depends the severity of the REOs and short sales in the market. In my subdivision, where there were 2 sales in last 6 months, 8 REO and short sale listings dominate the entire market in that subdivision. Now, another subdivision somewhere elese could be a little different than mine but I am appraising a home in this subdivision.

 

[Richard Carlsen]

It all depends on what definition of "value" you are using. If it is the FNMA definition in the 1004 reporting form, then other short sales, REO's etc. should not be used as they do not meet the definition of a Market Sale as defined in the definition of Market Value. The Seller in all of these cases, regardless of the percentage of market sales that are represented by REO's, short sales, etc., is not a typically motivated seller and therefore the sales price is not reflective of a market sale. It should not be used as a basis for establishing the Market Value, as defined, of the subject.

 

[moh malekpour]

It all depends on what definition of "value" you are using. If it is the FNMA definition in the 1004 reporting form, then other short sales, REO's etc. should not be used as they do not meet the definition of a Market Sale as defined in the definition of Market Value. The Seller in all of these cases, regardless of the percentage of market sales that are represented by REO's, short sales, etc., is not a typically motivated seller and therefore the sales price is not reflective of a market sale. It should not be used as a basis for establishing the Market Value, as defined, of the subject.

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(1) buyer and seller are typically motivated;

In REO sale, the seller is the lender or a Bank, needs to sell the property in an open market.
The property has been already appraised and has gotten a BPO. The price has been established for the marketing time of 120 days. The owner, the bank is motivated because he needs to sell that home and use the money for other things.
The buyer is motivated because he needs to buy a home to live in, or to repair it and resell it for profit or rent it out.(The buyer is motivated to buy)
Short sale: The seller is the homeowner who is behind his mortgage payment. He is motivated to sell the home because it is an albatross around his neck and needs to get rid of it but the market value of his home is below the mortgage amount on it. He has talked to the lender and lender has given an OK to list the home at market value and sell it. A home is either gotten a BPO or a preforeclosor appraisal or both and is listed with a broker. (the homeowner and the lender are both motivated to sell)
A buyer is looking to buy a home to live in, or to repair and resell it for profit or rent it (The buyer is equally motivated)

(2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest;

The seller has already gotten an appraisal and/or BPO and has talked to a broker to sell the home ( the lender is already more knowledgeable than a homeowner)
The buyer is either a sophisticated invested or a typical JOE who is using a broker service to help him out and answer his questions (seller and buyer both are equally informed

(3) a reasonable time is allowed for exposure in the open market;

The listing is taken by a real estate agent for 120 days but it may get longer to sell. The agent puts the listing in MLS, sometimes on a local paper and sometimes keeps open house and install multiple lock boxes for different prospect buyers. In this market 3 months marketing time is a typical marketing time

(4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto;

and Have you seen anything cotraray to this?

(5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale

That is why an appraiser needs to review the purchase contract

in a market wich is dominated by short sales and REOs in which you hardly can find anything else but those why REOs or short sales don't comply with above definition? what is missing?

 

[Richard Carlsen]

In a short sale, the seller is motivated by having to sell is a market where the proceeds will not cover the encumbrance and relies on the willingness of the financing entity to take less than is owed. I do not consider that a "typical" sales situation whereby the seller is typically motivated.

As to REO's/bank owned, their motivation is to get the real estate off of the books as they are unintended owners of the property as the result of foreclosure. Most often, the sooner the better. Yes they are motivated but in my mind, a lender/owner is not a typical owner of a property with an intention of selling the property to receive the maximum possible value for it in the market place.

You may parse and define all you want but my interpretation is that the sale described in the definition of Market Value in the FNMA forms does not describe sales of bank owned properties nor short sales.

We can appraise to a value that would include the consideration of such bank owned and/or short sales sales and we can consider the impact of these sales in the final opinion of value based on indicated sales prices and market conditions but, IMNSHO, we should use them when appraising under the FNMA definition of Market Value as they are N/A.

 

[Kevin Keck]

When banks armed with appraisals and BPOs sell properties at 60-70 percent of the original list price one could argue that they are not typically motivated. When banks make price reductions of 25 percent every 30 days you could argue that they are not typically motivated. When banks fail to do even the most routine maintenance on a property prior to sale you could argue that they are not typically motivated.

We can argue all day on what "typically motivated" means but we at least have to acknowledge that a homeowner selling a property and a bank selling a property are often motivated by different factors.

 

[Richard Carlsen]

I will not argue that banks and home owners under the financial gun are not motivated. And they may may want to become sellers ASAP. And they may even constitute 70% of the market.

What I will argue is that based on the definition of FNMA Market Value, any seller that has immanent foreclosure of the property looming or a bank that has taken a property that secured a note back, cannot be seen as a "typically motivated" seller. The home owner is one step from loosing the property while the bank has never occupied the property and really does not want to be an owner. Far from what I see as a typical seller in the FNMA definition; regardless of what percentage of the market they may represent.

 

[Vivian Bachner]

IMHO REO's, short sales distressed sales et al can easily become the market and it is our job to discover if that is so without attributing all sorts of unsupportable psychological stigma to them.

With all due respect, when appraising a house, we should not base our opinions like a salesperson (who should be reading people's motivations). It's the principle of substitution.

Case in point, worse case scenerio, there are some areas here in New Jersey where the only sales are REO's and are selling substantially below what they were purchased for in 2004 - 2006. Nothing else is selling so IMO they are the market. Period - No "stigma".

That is not to say that this applies throughout New Jersey because it may not. There may be "stigma" if the REO's are not dominating a specific market area.

 

[Kevin Keck]

IMHO REO's, short sales distressed sales et al can easily become the market and it is our job to discover if that is so without attributing all sorts of unsupportable psychological stigma to them.

With all due respect, when appraising a house, we should not base our opinions like a salesperson (who should be reading people's motivations). It's the principle of substitution.

Case in point, worse case scenerio, there are some areas here in New Jersey where the only sales are REO's and are selling substantially below what they were purchased for in 2004 - 2006. Nothing else is selling so IMO they are the market. Period - No "stigma".

That is not to say that this applies throughout New Jersey because it may not. There may be "stigma" if the REO's are not dominating a specific market area.

I agree with everything she said, and, of course, with everything I said. That said, I may very well disagree with myself in the near future.

Every time I try to engage in deep thought related to appraisal theory I get a headache. It ain't easy being me.