Disposition Value Form

[George Hatch]

The difference between liquidation value and market value is also marketing effort, with LV typically defined as having a severely limited marketing effort.

See, that's exactly what I'm talking about. The definitions for both LV and DV say *nothing* about atypical marketing efforts. They only refer to a buyer being under compulsion to sell. You're loading in an additional assumption that isn't stated in that definition, either explicitly or implicitly.

If you have an assignment that includes that assumption that's fine, but in that case it would be appropriate to treat that assumption as the EA rather than lump it in under an unstated interpretation of LV or DV.


Speaking of which, it's a big mistake to equate "compulsion to sell" as synonymous with REOs. You *might* be able to argue that REOs are a subset of "sellers compelled to sell" on the arbitrary basis but I would even argue that assumption. When these lenders have had these REOs on the books for years and they have been metering out their inventory according to the market conditions it's hard to say that their compulsion to sell was as much a factor in the sale price as the stigma of being an REO - which you guys constantly argue is the case - or of the actual condition. It can be one, it can be the other or it can be a combination of all three. Or none of the above, for that matter. I've seen examples of all of them, as I'm sure you have seen.

The seller who has an undisclosed compulsion to sell is still selling at the Disposition Value or even Liquidation Value if you think about it. Half the time they're under contract with another property and that sale is contingent on this one closing. So yeah, there's some extra motivation there. But we usually don't call that out, do we? Most of the time we're not even aware of it.

The only difference with those sales (which we all routinely use in our MV appraisals) and the REOs is that we *assume* the REOs have that compulsion even when their IRL actions demonstrate otherwise.

 

[J Grant]

There are different types of REO sales as well of course. In a MV purpose appraisal, one would typically use an REO sale as a comp that sold by listing on MLS and was exposed to open market, rather than an REO sold at auction or on courthouse steps ( the latter two might be used in a LV purpose appraisal)

As GH noted, compelled to sell as a motivation, especially over a reasonable time, differs from a compulsion to sell AND close in a short time frame. Many private owners can have as much or more compelling pressure to sell as a bank. The typically motivated seller is a composite of the typical range of sellers and their motivations competing for buyers with properties similar to subject.

 

[George Hatch]

The typically motivated seller is a composite of the typical range of sellers and their motivations competing for buyers with properties similar to subject.

Ruh-Roh, we're getting back to looking at the pool of actual sellers as an entire group instead of comparing individual sellers against an external and arbitrary benchmark for "typical". You're going to run into some resistance to that.

 

[J Grant]

Ruh-Roh, we're getting back to looking at the pool of actual sellers as an entire group instead of comparing individual sellers against an external and arbitrary benchmark for "typical". You're going to run into some resistance to that.

Was trying to make a point that the language of the MV definition refers to typically motivated seller ( singular), as opposed to "sellers". Logically one assumes that "typically motivated seller" means the composite of a range of sellers with properties competing against subject, and those sellers might include Bank owners as well as private owners. Perhaps we are in agreement? An arbitrary benchmark of "typical" can be contrary to what is actually occurring in the subject market area.

 

[George Hatch]

I wasn't disagreeing with you (at all).

What passes for "typical exposure" sometimes varies by property type. One of my neighbors spent 4 hours on Saturday attending a "90-minute" presentation by a timeshare sales group in order to get the free tickets to Disneyland. Some property types do commonly get sold at auction, art and other collectables commonly being among them.

 

[Amy Perkins]

Since REO listings are so monopolized by the same people in the entire county they can take advantage and hoard the listing. My thoughts are that probate and REO properties both sell "as is" and this discount should be pretty consistent. After you consider all other factors the discount should be consistent with your market. You would typically see a lower discount for an undersupplied market and a higher discount with an oversupplied market. Short sales tend to be the highest discount because the agents have their own buyers.

 

[Lee Lansford]

Have a requested 1004 w/ REO addendum. Special instructions are "the client is ordering appraisal to help determine a list price"

REO's sell for much less in this neighborhood, about $40-$60K less. ~75% of properties sell within 90 days.

1004 form nor REO addendum suits this clients needs as they are not searching for market value but disposition value. Example, in this same town but different neighborhood an REO was listed for $425K and sat for 150 days. Was in similar condition and size of other homes that sell for $415-$430K. Ended up selling for $359K. Asked realtor about initial pricing and final pricing, said "banks appraiser set the price" and sold much less because it's an REO.


Obviously the wrong product was ordered or wrong service was given.

So I don't do a disservice, what form do I use?

I agree with you.

Folks have been bastardizing the definition of MV to make it mean whatever they want it to mean for a very long-time now.

In situations such as yours, I've been successful with my clients in "educating" them (once I understood their needs) as to which definition of value I should be opining to.

 

[George Hatch]

It goes straight back to what ResGuy was talking about in making the effort to identify the questions we're actually being asked to answer. We can't get to "results that are meaningful" by making unnecessary assumptions. And once we get to meaningful, we can't get to "not misleading to intended users" by omitting these additional assumptions from our reports.

 

[Deleted member 134708]

Talked with the bank and we are clear on what the assignment is for, to list and sell an REO property in 90 days or less. 90 days was always part of assignment but doesn't matter as why I stated market is under 90 days. What we couldn't agree on is the form in which the results will be communicated. They wanted a 1004 w/ REO because "that's how other appraisers do it" and "we've always done it that way." Declined assignment.

Here is reality: Around here, $400K 10 yr old stucco box tract home REO's sell at a discount to non-REO. This property is that $400K stucco box. Its condition is no different than all others. If this was a $120K 1980 ranch home REO, it would not sell at a discount because there are very few left at that price and a very large pool of buyers from investors to buying for kids to 1st time buyers. A $400K home doesn't have that same pool of buyers. Buyers in this bracket will not pay market value for an REO.

So this bank can go ahead and get another appraiser to appraise it, list it at market value once again, and have it sit there for 5 months with 8 price reductions just like the last one did.

I have a background in the financial sector. This assignment is akin to an NYSE specialist/DMM on an IPO. Your job is to find an equilibrium of bids and offers. If you set the price at $50.00, open the stock and it instantly drops 20% and closes $30, you did a terrible job (won't get into green shoeing). Whoever set the price at $405K, did a terrible job. Not interested in doing a terrible job so another appraiser is welcome to.

I will follow up on what this lists at and sells at.

 

[residentialguy]

REO properties typically have the same bundle of rights as any other property. If they have a lien against them that is another matter. What comps to use is a whole other discussion one that's been had many times!

To summarize, it is not only the days of market exposure, its the compulsion to sell AND consummate (close) within that X period of days imposed by client in LV or DV versus X days on market prior to hypothetical consummation as well as degree of marketing effort..

Did the writers of definition have a sense or humor using the words consummate and exposure.?

No, they are have restricted rights of conveyance.
On the whole, REOs are a distinct market segment. The REO listing is distinguished by the real estate purchase addendum. This supplement to the state-specific purchase agreement is universally mandated by the secured lender's legal counsel as a contingency of resale. This is an "as-is" sale. The addendum stipulates to the seller's status as owner through foreclosure and disclaims liability for repairs, overt or latent defects, building code or zoning enforcement, and prospective title claims. These disclaimers are unilateral and onerous to the extent of requiring a prospective buyer to prepay dewinterizing and rewinterizing expenses, if necessary, to facilitate a third-party building inspection. As a rule, these disclaimers supersede those of an arm's-length sale, with fewer conveyed rights. An REO title is transferred by limited warranty or delivery deed or, if clouded, by quit claim deed. Title insurance is not offered. In the event of a quit claim deed, a lapse of time or lawsuit may be necessary to assure quiet title for resale with a warranty deed. This contrasts with arm's-length market sales, which typically transfer with a warranty deed, insured title, and seller disclosures. Contingencies (such as selling your house) are not typically accepted, which cuts out much of the market. So yes, a REO sale confers a restricted bundle of rights to a seller, who is typically a cash buyer... who may be motivated by repair issues, competition, low demand, excess inventory, or any combination thereof.

As far as compulsion to sell and consummate within a X period of days....Banks just want to get rid of these REO properties as fast as possible. Cash buyers are the norm. Many times inspections are waived. Banks are used to seeing REO deals not close. Usually the reason is because the property did not pass inspection and the buyer backs out or changes their mind. The other reason is because wholesalers use the inspection period to market the property and then back out at the last minute and cancel their purchase contract. Banks know this and one of the easiest ways to beat out the competition is to “waive inspections”. Banks also love to see inspections waived because this indicates that the buyer will lose their deposit if they do not close.

LV is easily customized with it's option for the client to impose market time. Certainly LV the best official stated type of value to use...much more applicable than MV. Restricted rights of conveyance and undue motivation inherent in REO sales must be recognized to ensure precise and thorough reasoning and accurate results that address the client's needs. OP is pretty obvious.