Distressed Properties were used for all comps!

[David Mescon]

I like Webbed's idea of banning form reports for a few years. First off, fees would shoot through the roof since most residential appraisers can't write narrative reports. The bad part is, a lot of good appraisers have never written a narrative report, which, in and of itself, does not make them bad appraisers. Of course, since relatively few bank or AMC employees actually know anything much about appraisal, there would be a tremendous shortage of people to review and underwrite these loans. I think it would be a great way to clean up the system, but, you've got to be fair and give the average residential guy a bit of ramp up time.

 

[residentialguy]

What some consider undue stimulus, others consider typical motivation.

LOL...ain't that the truth. Typical motivation > :new_snipersmilie:

I like Webbed's idea of banning form reports for a few years. First off, fees would shoot through the roof since most residential appraisers can't write narrative reports. The bad part is, a lot of good appraisers have never written a narrative report, which, in and of itself, does not make them bad appraisers. Of course, since relatively few bank or AMC employees actually know anything much about appraisal, there would be a tremendous shortage of people to review and underwrite these loans. I think it would be a great way to clean up the system, but, you've got to be fair and give the average residential guy a bit of ramp up time.

With all that's necessary for a good report, there's not much different from a narrative report anymore.

 

[JSmith43]

I don't need a bunch of sugar coat. I like appraisers like Webbed because he calls me out on the carpet. Uncomfortable, yes...but I walk away a better appraiser. I take joy in the fact that one day Webbed might make a mistake and I'll be able to drag his feathery body through the streets of the AF

Great stuff, Residential Guy.

I too, would honor Webbed in the same way, by correcting him when he is substantially wrong. That is not the case in this thread & is not often the case.

If he uses excess sarcasm, I will not correct him, for that is his "sock puppet" persona that he has chosen to develop for the forum.

Besides, look at how well he can behave when the topic is quite serious? Very flexible, IMO.

 

[J Grant]

David, who is gong to "ban" form reports? Esp now with UAD mandatory?

The form report for lending work is not an option, it is a lender requirement. It is not the form itself that is the problem, it is what is contained on the form, and if crap is on a form, the same crap could be on a narrative appraisal, just presented in wordy form (most likely most narratives used lots of canned and cloned statements anyway, )

The form exists to make it faster and easier for underwriters to find information. They can look at a checked box and see it is one story, instead of having to wade through pages of narrative to find the same information.

Narrative reporting may make one a better writer, I would have to question if it makes one a better appraiser. The point is moot though as for lender purposes, it will never happen. A good form report though actually contains a lot of narrative throughout, and one can write pages of addendum if one chooses.

 

[David Mescon]

J, I was just off in Fantasyland - nothing more. I'd even start appraising again - it would be fun.

 

[Mztk1]

In the definition of Market Value we have the #1 absolute first thing to consider and that is that the buyer and seller are "typically motivated". What does that mean?

Well, "typically" tells us off the bat that it is a relative term, not an absolute, because it must be "typical" to something. But what?

If I am in a market area where 75% of the locationally, physically and functionally similar sales are bank influenced and 25% are not, what is the "Typical Motivation" for a seller in this market?

Let's say the typical motivation in such a market is to liquidate. Does this contradict the other points within the definition of market value?

1. Can a bank be well informed or advised and be acting in its best interest? Sure.
2. Can a bank be allowing "reasonable" exposure time? Well "reasonable" is another obviously relative term and must be measured against the other houses locationally, physically and functionally most similar so, yes, of course it can.
3. Is Payment in terms of US cash (a no brainer)
4. Is the price unaffected by special or creative financing or concessions (another no brainer).

I think Lobos is correct that REO sales, when they make up a large portion of the locationally, physically and functionally most similar sales, set the barometer for what "typically motivates" a seller in a given market area. Not only do I know this to be true, but I know that appraisers have gotten in hot water with Fannie Mae and with state boards when not seeing it as clearly. For example:

There was a condo conversion project here where the developer was selling for about 3 years and was pricing the units at $159,900 for the entire period. By the 2nd year the owner occupants in the project were beginning to list their units as resales in line with the developer pricing, but they could not sell. Eventually, though the developer constantly had several closings at $159,900, resales began to sell as short sales and REOs for $45,000 to $55,000, and other short and REO resales were listed and pending at that same $45-55 range. Despite this the developer was still listing and gaining contracts at $159,900, and when you went to appraise them they'd do their best at convincing you the short sales and REO sales in the project should NOT be used. Less than 2 miles away there was another condo conversion project with the exact sitution. Therefore, appraisers came in to appraise the developer sales and they would use either one from inside from the developer and two from the other developer, or 2 from inside and one from the other developer and make value. The opinion of those appraisers was that short sales and REO sales are not indicative of market value, so they chose to otherwise ignore them. Well, time has passed, the loans went under, Fannie refused to back them on grounds of the appraisals completed, and several of those appraisers are unable to work as appraisers any longer. The argument from the forensic FNMA reviews and from the state was simply, if the houses were worth $159,900 then the sellers of the resales would not have had to sell short (some of these resales had mortgages of $100,000 or less).

So, short sales and REO sales cannot be ruled out of a market value appraisal just because of the definition of market value. That is simply incorrect. I usually rule them out for other reasons. One by one I go through the interior photos of each and if they need work and my subject does not, well, there is a good change I will not use them (or I will make a large condition adjustment). I call the agents for those in average or good condition and ask questions, especially how long the dwelling sat vacant. If more than 6 months, especially if the utilities were off, that is usually enough for me to say that it is likely no good as a market sale (but I will still compare it to the non-distress sales in the market to see if it sold in line or not). Today, however, especially with the HomePath sales that get foreclosed and sold pretty quickly with new paint and carpets, very often a predominant number of sales in the sales comparison approach (and sometime, rarely, but sometimes all of them), will be an REO or short sales in such markets.

 

[JSmith43]

Well, "typically" tells us off the bat that it is a relative term, not an absolute, because it must be "typical" to something. But what?

Do you think the authors of the MV definition envisioned a 2nd great depression as they penned those words?

Typically motivated refers to the motivations under hypothetical conditions. Do you think the authors of the definition intended that the principle of what constitutes a fair sale varied situationally?

I will give you this, fair sale may mean something different to a Farangi trying to screw someone out of their last Gold Pressed Latinum, that anticipated by the authors. Their original intent is important, IMO.

Besides, "typically motivated" doesn't set the stage either. The first paragraph sets the hypothetical conditions in sweeping fashion. All conditions requisite of a fair sale, ...assuming price is not affected by undue stimulus.

 

[Michigan CG]

I like Webbed's idea of banning form reports for a few years....

There are so many form fillers that weren't taught what the boxes mean and how to analyze. I see neighborhood descriptions that would fit any town in the world; the same with neighborhood descriptions. How many appraisers have performed simple regression analysis for GLA or land?

It is my opinion that in order to get a residential license one should have to submit a narrative residential report. By doing so the potential licensee would better understand what they have been taught by rote without truly understanding everything in the form.

........With all that's necessary for a good report, there's not much different from a narrative report anymore.

The difference would be in understanding. It would be beneficial for many appraisers to read a couple commercial reports where there is truly analysis instead of canned comments that would apply to any property, neighborhood or community. I have yet to review an appraisal this year where one adjustment was explained.

 

[Mztk1]

JS

1. No I do not believe it was the intention of those who wrote the definition of market value. But there are always unintended consequences and with the new UAD form, with the new 1004MC, with all the changes in the industry since the debacle, certainly, if they believed the consequences of the definition of market value were inappropriate given the situation, then they would have changed it as well.

2. "Undue Stimulus" is once again a relative term. "Undue" means excesssive or inappropriate. How do we measure what is "excessive" or what is "inappropriate" in a market (or anywhere for that matter). Simple: we compare it to what is "normal", or in other words, what is typical! Undue Stimulus is DEPENDENT UPON "typical motivation". You want an over-reaching, absolute definition on relative terms. All relative terms are defined contextually.

3. No matter what your opinion is, it is not how Fannie has seen it nor my state board. There are times when REOs (arguably short sales as well but I have seen nothing definitive about them) are the best sales and should be used even when "arms length" sales are available. I gave you one example above. There are others.

 

[Webbed Feet]

"Typical" too typically used, and over-simplification of complex issues.

In the definition of Market Value we have the #1 absolute first thing to consider and that is that the buyer and seller are "typically motivated". What does that mean?

Well, "typically" tells us off the bat that it is a relative term, not an absolute, because it must be "typical" to something. But what?

If I am in a market area where 75% of the locationally, physically and functionally similar sales are bank influenced and 25% are not, what is the "Typical Motivation" for a seller in this market?

Let's say the typical motivation in such a market is to liquidate. Does this contradict the other points within the definition of market value?

First, I agree that this trade, and all GSE/Lenders" should be almost banning the use of the word "typical" in reports and definitions alike. Appraisers have, for a long time, attempted to apply the word "typical" to sales concessions as well with the claim that if a market had any significant percentage of transactions with seller paid financing concessions that the appraisers did not have to adjust for them. Total crap of course, but it was nothing more than professional abuse of the word "typical" at play.

What I read is you're just making this more complicated than it is. If one doesn't know what something is, then stop and consider what it isn't, after that anything left over is what it is. Therefore, "Typically Motivated" is not under duress in a transaction that is not arms-length or otherwise not arms-length due to some sort of relationship of the involved parties. It is also not under distress in a transaction that would not be entered into by anyone who could otherwise avoid it.

1. Can a bank be well informed or advised and be acting in its best interest? Sure.
2. Can a bank be allowing "reasonable" exposure time? Well "reasonable" is another obviously relative term and must be measured against the other houses locationally, physically and functionally most similar so, yes, of course it can.
3. Is Payment in terms of US cash (a no brainer)
4. Is the price unaffected by special or creative financing or concessions (another no brainer).

There are so many articles/publications all over the internet as to why REO and Short Sale transactions are far and away more difficult, hazardous, time consuming, uncertain (That should ring a bell. What happens to any market faced with uncertainty?), that I don't view it worth my time to bother explaining it here. Go research it. As long as there is successful substitution, at a completely different price level taking place, the market place remains stratified and the REOs /Short Sales are distressed sales that need adjusting to reflect market value. The buyers are ONLY motivated to bother with all the hassles represented by involving themselves in an REO or Short Sale purchase due to the desire to obtain Realty below market value, not at it. If you wish to attempt to explain why buyers are willing to put up with all the hassles involved for some other interesting reasons, please, fire away!

I think Lobos is correct that REO sales, when they make up a large portion of the locationally, physically and functionally most similar sales, set the barometer for what "typically motivates" a seller in a given market area. Not only do I know this to be true, but I know that appraisers have gotten in hot water with Fannie Mae and with state boards when not seeing it as clearly. For example:

There was a condo conversion project here where the developer was selling for about 3 years and was pricing the units at $159,900 for the entire period. By the 2nd year the owner occupants in the project were beginning to list their units as resales in line with the developer pricing, but they could not sell. Eventually, though the developer constantly had several closings at $159,900, resales began to sell as short sales and REOs for $45,000 to $55,000, and other short and REO resales were listed and pending at that same $45-55 range. Despite this the developer was still listing and gaining contracts at $159,900, and when you went to appraise them they'd do their best at convincing you the short sales and REO sales in the project should NOT be used. Less than 2 miles away there was another condo conversion project with the exact sitution. Therefore, appraisers came in to appraise the developer sales and they would use either one from inside from the developer and two from the other developer, or 2 from inside and one from the other developer and make value. The opinion of those appraisers was that short sales and REO sales are not indicative of market value, so they chose to otherwise ignore them. Well, time has passed, the loans went under, Fannie refused to back them on grounds of the appraisals completed, and several of those appraisers are unable to work as appraisers any longer. The argument from the forensic FNMA reviews and from the state was simply, if the houses were worth $159,900 then the sellers of the resales would not have had to sell short (some of these resales had mortgages of $100,000 or less).

Nope, you're mixing different causes and affects together to arrive at erroneous support for your view in my opinion. First of all, nobody said in the thread that I know of to "ignore them." Next, comparing the problems of new condo projects that were slammed by the crash, to detached SFR markets to try to make your point is quite a stretch. That is not comparing apples to apples, and as an appraiser you should know that. More, I rather suspect your above story leaves out a bunch of parts of the real stories. I will certainly give you that many appraisers do not research their work like they should, or should have, and not enough of them have paid the price for that.

So, short sales and REO sales cannot be ruled out of a market value appraisal just because of the definition of market value. That is simply incorrect. I usually rule them out for other reasons. One by one I go through the interior photos of each and if they need work and my subject does not, well, there is a good change I will not use them (or I will make a large condition adjustment). I call the agents for those in average or good condition and ask questions, especially how long the dwelling sat vacant. If more than 6 months, especially if the utilities were off, that is usually enough for me to say that it is likely no good as a market sale (but I will still compare it to the non-distress sales in the market to see if it sold in line or not). Today, however, especially with the HomePath sales that get foreclosed and sold pretty quickly with new paint and carpets, very often a predominant number of sales in the sales comparison approach (and sometime, rarely, but sometimes all of them), will be an REO or short sales in such markets.

You conclude with saying, basically, that the only difference between REO/Short Sales and those not REO/Short Sale is condition. Well, perhaps in your market area as I can't speak to your market(s). But in my market areas this would seem to reflect a great lacking in interviewing the participants of the markets and taking all of the elements of differences between two stratified markets into consideration.