Disposition Value Form

[Ken B]

As an aside, the second property described in my previous post may or may not be a foreclosure property.

 

[J Grant]

Because most people pay the same for a property that is occupied, staged, with chocolate chip cookies fresh out of the oven as they would pay for a cold, dark, vacant house with missing appliances and ceiling fans, scuffed up walls, ragged carpet, a broken toilet, and dead flowers...

First of all, if a comp sale is truly in inferior condition to your subject (broken toilet etc), why are you using it, whether it is an REO or not? If you are using it and it is about needing repairs and condition, than make an adjustment.

If it is not about repair and condition and just about "curb appeal", yes, an occupied, furnished, cheerful looking house may sell for more than same house that is vacant with a sad air about it. It's what your market says. If inventory is low, the vacant REO may sell for the same. If the same condition but vacant REO sells for less, who was the more knowledgeable, prudent buyer? The one who paid more because of a chocolate chip cookie smell and nice furniture , or the buyer who paid less for the SAME house?.

We see this in new home builder sales, buyers over paying based on touring a model home designer staged with great furniture, fresh flowers etc. THEIR vacant, boring builder model of same house may drop in price/value immediately on closing..

Appraisers need to separate factors of value and buyer perception out that is what we need to analyze. Just because a buyer perceives value in a staged house does not mean the value is there, even if they pay more.

 

[J Grant]

What is it about REO sales that turns appraises into morons? IF a sale is not comparable to your subject in condition and appeal etc, why are you using it, REO or not? An REO owned property, assuming the sale was exposed to open market is like any other possible comp. Evaluate if it is competitive to your subject, would likely buyer for your subject consider it?

 

[J Grant]

Anybody ever heard of a thing called "most probable purchaser?"

If your most probable purchaser for subject would consider a similar size, location and conditon REO owned property as a substitute, it is a candidate for a comp. If the probable purchaser would not, then it's not.

 

[Ken B]

Back when, I did a lot of ERC work. I did a study of ERC sales vs non-ERC sales and was able to prove that relo's sold, on average, for 6% less than non-relo properties. So I asked myself why this might be. I concluded that the answer was largely attributable to differences in the appearance of a property properly staged for marketing and a cold, dark, shell of a property in which every scuff and stain was presented for observation.

Residential owner-users purchase homes, not houses. It is an emotional decision which is easier to make when a house is essentially dressed for a first date.

So, rather than ask if the sale of a vacant relo/foreclosed house contains a negative factor which requires positive adjustment, should we, instead, ask if a sale of a well-staged home contains a positive factor which requires negative adjustment.

 

[J Grant]

If one considers compensation factors to the lender as seller, a lower price of an REO's may be the equivalent in net to seller as a higher price of a non REO that took longer to sell and paid a higher commission.

Why would a lender take a cash, lower offer if they can wait for a financed higher offer? They may sell for 6% less (or X$) less all cash close in 30 days not because they are under compulsion to sell in 30 days, but because doing so saves them months in carrying costs. Many REO sales pay less in RE broker fees as well. So if you factor in less time paying to carry a house, and lower commission paid, the lender as seller may be recouping similar $ as an owner who carried a house six months to get a better price and paid a higher full commission.

I don't suggest one do this because it is too complex/above scope of comparison, but if theoretically one adjusted for lower commission paid and savings on carrying costs, some lower sale prices of an REO would be equivalent to a non REO sale.

 

[J Grant]

Back when, I did a lot of ERC work. I did a study of ERC sales vs non-ERC sales and was able to prove that relo's sold, on average, for 6% less than non-relo properties. So I asked myself why this might be. I concluded that the answer was largely attributable to differences in the appearance of a property properly staged for marketing and a cold, dark, shell of a property in which every scuff and stain was presented for observation.

Residential owner-users purchase homes, not houses. It is an emotional decision which is easier to make when a house is essentially dressed for a first date.

So, rather than ask if the sale of a vacant relo/foreclosed house contains a negative factor which requires positive adjustment, should we, instead, ask if a sale of a well-staged home contains a positive factor which requires negative adjustment.

Good point, and sometimes that well staged home needs an adjustment.

 

[Ken B]

I would argue that if the marketing time of a foreclosed property, more specifically, the DOM from list to contract, is comparable to marketing times for non-foreclosed properties, a knee-jerk reaction that the foreclosed property does not represent a market transaction is faulty. On the other hand, if the marketing time for the foreclosed property is substantially less than the average for non-foreclosed properties then the seller may have dumped the property, either intentionally or unintentionally. The same analysis holds true for marketing times of any property, regardless of the nature of the seller.

 

[Meandering]

A REO and a traditional arms-length sale are not good comparables to each other. Their price equivalence has nothing to do with it. Don't get me wrong...I'm not saying they can't be used. Sometimes not so good of comparables are the best available. As far as showing them in the market, I do at least 6 different trend analyses with them, both with micro market of comparable improvements and macro of SFR in the neighborhood...so the client is well aware of their presence and how they affect each other. Using 1 or 2 tokens in the SCA is pretty much worthless in that regard.

And your point is?

Your subject is an REO. Will your market perceive it as anything but an REO?
As is, as of the day, why would you not consider other REOs as the competition? Does the request for market value suddenly change what your subject is, an REO, into some imaginary thing it is not?

 

[J Grant]

For MV purpose, REO's should be considered for comps if the typically motivated buyer for subject would consider them, NOT because the subject is "an REO".

If you want to analyze impact of subject being REO owned apart from the market value opinion, do so, but including REO comps for the sole reason the subject is an REO is not in line with the MV purpose...in fact it is because appraisers were doing that that now some lender clients ask appraisers to consider NOT using REO sales on these MV assignments. (or only using them with explanation/analysis) Indeed, sometimes the best comps are REO properties but they have to be on the grid for the right reasons.