REO's as comparables to non-REO

[hastalavista]

"At the point where REO has been 100% of the market sales for a sustained period of time, it is most likely the best evidence of market value for the subject. It is a situation where the low end of the value range is solidly defined by the abundant data, and at the same time, the ability to measure REO stigma is thwarted by a sustained period lacking Market Value (non distressed, compulsory) sales. There is simply no way to define the upper end of the range with equal certainty." That's how he might have fleshed it out, had Denis not wore him out with the preceding questions

:laugh: I was afraid he was beginning to think I was conducting an ambush interview!

That could be the rationale.
But I think more likely it is the "tipping point" explanation. If I have 99 REOs and 1 traditional property, and all other things being equal, how likely is it that the traditional sale is going to sell for more than the other 99?
More likely that the traditional sale will sell within the range of the REOs.

So if that is true for the 99:1 ratio, it would be counter-intuitive to say it isn't so when all sales are REOs.
The question I asked was when does the REO sale (a non-market transaction per the instructor) shift from exerting effect on market value to becoming the market value? I thought it would be true at the 70:30 mark; he opined 90:10.

Probably somewhere in that range.

Certainly Vegas Wayne's world is at that point now.

 

[VegasWayne]

In all of the similar communities in Las Vegas, there was not 1 homeowner that just decided to move within the past year?

If the property was built between 2002 and 2008, the homeowner is most likely underwater on their loan. If they decide to move they either try to do a short sale or walk away and give it back to the bank. Large areas in this town were built between 2002 and 2008. The land was purchased by the developers from the BLM at auction and was previously desert. The monopoly the BLM has with vacant land was one of the factors that caused the upside of the housing bubble here.

 

[JSmith43]

That was a great report of the course, Denis. I want to add my "thank you" to the record.

Now, for the readers that made it this far & wondering if you are the only one frustrated by the 100% REO for a sustained period question and if that really does make an Apple an Orange.

Does the "potential difference' shrink to oblivion? See what a 25-0 poll response your peers logged. Most read, but don't post, you know:

http://appraisersforum.com/showthread.php?t=175147

There is no 30 second delay, since the link is within the forum.

 

[CANative]

Things sell at "market pricing" not "market value." Value is an opinion and is in the eye of the beholder. Market value does not apply to single transactions.

 

[J Grant]

Things sell at "market pricing" not "market value." Value is an opinion and is in the eye of the beholder. Market value does not apply to single transactions.

Thank you! Appraisers here keep referring to sales as "market value" or "not market value"

Market value is what we are trying to find for the subject. The sales are the sales, some sold for higher or lower prices than others, and some of the sales are REO's and some are not. Appraisers have the sales available to choose as comps.

Appraisers became accustomed to referring to sales as being sold for "market value", as a kind of shorthand. But techincally, applying that term to sales, whether we choose to use them as comps or not is incorrect.
Market value is what we are trying to find for the subject.

An appraiser can do a data study and conclude that REO sales sold for less than non REO sales in the past six months.

Correct terminology: "REO sales sold for less than non REO sales in the past six months"
Incorrect terminlogy: "REO sales sold for less than market value sales in the past six months. "

 

[residentialguy]

Thank you! Appraisers here keep referring to sales as "market value" or "not market value"

Market value is what we are trying to find for the subject. The sales are the sales, some sold for higher or lower prices than others, and some of the sales are REO's and some are not. Appraisers have the sales available to choose as comps.

Appraisers became accustomed to referring to sales as being sold for "market value", as a kind of shorthand. But techincally, applying that term to sales, whether we choose to use them as comps or not is incorrect.

Market value is what we are trying to find for the subject.

I agree

However, using similar comps that represent the same condition of sale that you're seeking for the subject will probably produce a better representation of the subject's market value (or at least more reliable) then similar comps that didn't fit the definition of market value.

 

[hastalavista]

Things sell at "market pricing" not "market value." Value is an opinion and is in the eye of the beholder. Market value does not apply to single transactions.

You are correct, sir.

 

[J Grant]

I agree

However, using similar comps that represent the same condition of sale that you're seeking for the subject will probably produce a better representation of the subject's market value (or at least more reliable) then similar comps that didn't fit the definition of market value.

NO!!!!!!!

We are supposed to choose the comps according to whether or not they are the best subistutes for the subject ( in location, phyical characterisitcs, etc), and then adjust for condition of sale if we need be. Your way is backward, run around finding comps with "condition of sale" similar to market value ( but we don't know what market value is yet, since that is what we are trying to find for the subject)

Principle of substitution is heavily reliant on what a buyer would buy as a subsittute for the subject. Do you honestly think a buyer would not consider buying an REO identical to the subject and right next door to it, because some appraiser would have to make a condition of sale adjustment on it?

The fact that most buyers are not put off by the condition of sale of an REO (dealing with a bank) is evidenced by the large number of REO's being sold .

 

[residentialguy]

The fact that most buyers are not put off by the condition of sale of an REO (dealing with a bank) is evidenced by the large number of REO's being sold .

The fact the REOs need greater adjustments then it would as a fair sale is evidence that they are not as good of comps.

 

[J Grant]

I agree

However, using similar comps that represent the same condition of sale that you're seeking for the subject will probably produce a better representation of the subject's market value (or at least more reliable) then similar comps that didn't fit the definition of market value.

Once again, comps are not supposed to "fit the definition of market value"

The definition of MV exists to create a theoretical sale ( the most probable price a property would bring..) for the subject. Then the comps are adjusted for condition of sale, special financing etc, up to the theoretical MV condition of sale for the subject.

There was actually an incorrect refernce of comps sales as MV sales by Dennis instructor per Dennis Q/A comments, probably becuase the instructor gave a quick answer and appraisers have become used to saying MV as a shorthand for other terms, but per USPAP, MV exists as a set of assumptions of a theoretical sale of a subject in order to find the most probable price.

I asked the most experienced appraisers on the board to find a link or quote form any credible source, USPAP or Fannie or FHA etc, that sales comps are supposed to meet the defintition of MV, none could provide it because such a guideline was not found anywhere.