REO's as comparables to non-REO

[DMZwerg]

No, short sales are not special financing. Short sales are when the seller is upside down on their mortgage, and the bank agrees to take less than the mortgage amount, AFTER the seller has had house on MLS 90 days and can prove no amount at mortgage value or higger was offered . THEN the bank agrees to take less than the mortgage owed, and the realtors put "Short sale" on the listing.

Typically, the lender of the homeowner does not offer any special financing, it is up to the buyer to pay cash or secure their own financing as they would with any other sale.

Your definition is not wrong but your understanding is incomplete.

Condition 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"

Problem: the comps sold under special financing. The holder of the lien had to agree to the price and to be acceptable as a short sale the home owner had to ask to be released from the lien due to hardship OR (and here is where the special financing comes in) is typically expected to get a personal loan for the difference between the debt owed and the sale price. The home owner is associated with the sale as is the holders of liens.

So, you are claiming I am incorrect on the application of Condition 5 in the FNMA definition of Market Value (see form 1004 or such) but I stand by the assertion that I am not and that furthermore it calls into question Conditions 1 & 2 as well since the home owner may or may not be getting out without debt and the holder of the original lien may or may not be "taking a bath" on the deal (albeit less of a bath than with a foreclosure).

 

[residentialguy]

Going further out and further back can yield data points from which trends can be established.We have heard the above before.

Randolph wrote:
You and RedGuy have this in common as you apply it to finding traditional sales.

As an appraiser, apply what ever method is necessary to get the most accurate information. You treat it like you would any other line item adjustment when you don't have recent comps in the area to prove value (or that there is a lack of value). Find out - that's your job. Going out of the area is just one of many methods you can use. Just ignoring it because there are no recent comps is NOT a method you can use...certainly not one that you to defend yourself in court with, anyway. :new_all_coholic:

 

[DMZwerg]

You are the person who espouses that technique or method for adjusting REO sales in close proximity to the subject. From my experience, I use traditional sales when I have them. I don't manufacture traditional sales out of REO sales by finding a traditional sale that loses its relevancy by going farther away from the subject into dubious competing neighborhoods or farther back in time so as to make enormous adjustments to account for market condition differences. It cracks me up that you think you can have an accurate value judgement using those methods.

It continues to amaze me that any appraiser thinks that using REOs as comparables (aka, substitutions for traditional sales) without comment, analysis or adjustment can yield a value that fits the Definition of Market Value.


I at least do analysis, adjust, and comment why I used them and what weight I gave to them. You may not agree it is valid, but it is what I do when appraising in such complex markets. I think the real problem is too many appraisers are treating complex (REO dominated) markets as simple markets with a new standard (aka, REOs).

 

[DMZwerg]

In good times, about 85 % of the sellers "have to sell". This can be heard from the mouths of any of the seasoned agents.

But that is not undue stimulus (it is what they are saying, that's all) like REOs (banks literally have to process & sell within a longer time period, and if too many on the books have to liquidate many "now", orthe BANK will be liquidated), or the RELO where they seller has to continue to pay others to monitor the house until it sells, or the divorce where a judge has ordered the property liquidated within a certain time frame, or an estate sale where one of the heirs is in financial straights and thus the estate needs to liquidate, or the owner whose son died and due to a renter making hurtful comments the seller wants to liquidate to help deal with his grief faster.

The key in many I just mentioned was "liquidate", as in "liquidation value".

I have been selling off my rentals. Last latter August I put one of them on the market. Next door was a fresh REO; poorly priced I might add. I priced the house properly...valued it and discounted it $ 5k to allow for the continued decline in the market over the early part of the exposure period. I had an offer in 20 days and closed in mid October..........the REO is still on the market.

:laugh: Wait, let me get this straight :laugh: you put your property on the market at liquidation value, sold it within a liquidation time frame, and are claiming you were typically motivated (Condition 1 *) and allowed for reasonable exposure time (Condition 3*)???




I think you may want to go back and read the Definition of Market Value again!


* - Definition of Market Value states "under conditions whereby:" and then list 5 items, that is what I refer to as Condition 1, 2, 3, 4 & 5 respectively.

 

[residentialguy]

I don't manufacture traditional sales out of REO sales by finding a traditional sale that loses its relevancy by going farther away from the subject into dubious competing neighborhoods or farther back in time so as to make enormous adjustments to account for market condition differences. It cracks me up that you think you can have an accurate value judgement using those methods.

Few questions:

1. Have you ever pulled comps from a competing neighborhood?
2. Have you ever gone over 6 months or 12 months for a comp?
3. If you have, did you end up with an opinion of value that is meaningful and not misleading, supported by adequate comparable market data as you certified you did?
4. If you did, how did you get a pass?

 

[residentialguy]

No, they do not want a hypothetical value, which in appraisal terms means contrary to known facts, they want a probable value, based on conditions/assumptions ( the conditions being applying the standards of market value.

When you are doing a refi and they want the most probable price...sounds to my like it is hypothetical problem to solve. "If this property sold like this (see MV def), this would be the most probable price"

Res Guy, that post I made the short one you quoted they want hypotheical value was an error on my part, I hit the send button before I finished

Awww, too bad. That was the first time you were correct!

 

[Terrel L. Shields]

In good times, about 85 % of the sellers "have to sell". This can be heard from the mouths of any of the seasoned agents.

..and I always believe everything a Realtor tells me...

50% of the property listed, easy, fails to sell, so they don't "have to sell" otherwise, they would auction it off in desperation. They "want to sell"... a big distinction.

 

[VegasWayne]

Beating a Dead Horse

How many post have there been on this subject?

 

[DMZwerg]

How many post have there been on this subject?

Actually, I don't consider to be beating a dead horse as more people view this forum and this thread than just those that are responding. If it causes some of those to take a closer look at the standard SOW, Definition of Market Value, Appraiser's Certification and other predefined items that are included in the Fannie Mae & Freddie Mac forms, and definition of Market Value in USPAP (particularly "Appraisers are cautioned to identify the exact definition of market value, and its authority, applicable in each appraisal completed for the purpose of market value" in the USPAP Definition of Market Value and Standards Rule 1-2 (c) & (c)(iv) ) then I consider it time well spent.

Odd that. All this time people arguing the meaning of "typical" and not comprehending that USPAP states point blank that the type and definition of value must be clearly identified and such.

If we, professional appraisers, can not agree what the definitions mean then it is very doubtful that intended users would universally agree either, and it calls into question whether or not appraisers and their clients are in the same universe on agreeing on the definition let alone the same page.

 

[Joyce Potts]

I could have sworn I saw that horse twitch.