A few questions on REO Appraisal Procedure

[ZZGAMAZZ]

We also tend to overlook one of the most critical factors in today's market: borrowers must possess the wherewithal to withstand the duration of time related to the rigor of having an offer accepted and qualifying for a loan.

 

[ZZGAMAZZ]

Does the current definition of "market value" require an EA concerning lenders' motiviation to dispose of the surfeit of inventory?

 

[ZZGAMAZZ]

The more traditional valuation of SFR's reported on a 1004 form includes active listings and pending sales in the SCA grid; and these might be weighted/prioritized more so than the adusted values of the properties in the grid that have sold. That is undisputed.

Because a residential appraisal that requires the REO addendum segregates the closed sales in the 1004 from the listings in the REO addendum, can/should the as is value established in the 1004 be affected by the current listing market?

Failing to do so would appear to establish an opinion of value based on partial data; and so the result would be less than credible. However, to do so appears to be above the scope of the report that is the basis of a typical REO assignment, as far as I am aware.

 

[ZZGAMAZZ]

One of today's REO assignments included a client-imposed market exposure period of 60 - 90 days. All of the 6 (rather than 3) sold comparables were marketed less than 2 weeks, and all sold at list price or slightly above list price with nominal concessions.

Typical exposure is being defined as less than 1 month and so the client-imposed exposure would have given the property more time to sell than was needed.

If client exposure is greater than market exposure, the retrospective list date would have been prior to the actual market-related list date. Longer exposure should be defined as enlarged exposure with the potential for a higher sales price. However a typical property marketed during the exposure period was not discounted, so who cares what the value would be if the property had been exposed longer than necessary?

Does everybody have me on ignore?

 

[Carnivore]

No one is ignoring you. It is a tough type of assignment.

Client imposed esposure time is not an exact requirement. Its not even an actual requirement, but more like a goal. Many clients use a range, like 60-90 days. Thats there goal.

It is very helpful to have RE Broker experience along with appraisal training to fully understand a REO valuation problem and how to solve it.

I think Potato brain has said a mouthful in his last post. Mr webb says you want the widest range of buyers. Well yes, but lets examine want he means(he has not explained himself). Its not totally a function of pricing. I can sell almost any house in america tomorrow morning for $1.00. Exceptions would be Detroit. There you have to pay someone to take title to a parcel in some parts of the city.

Think about what a RE Broker is going to do to sell a parcel in 60 days. Not 120 days, nor 180 days, but 60 days(or less). You can see this is a very important component of your valuation problem.

I will go back to pricing now and explain why its not the only function. Let me ask you as question about a house I want to sell. If I offer it to you for one dollar would you buy it provided I can supply a clear title?

Your answer better be maybe, or no! It better not be yes! Unless of course you understand what couch said in his last post.

Oh, but it makes perfect sense. With a very short time to dispose of the property, only those that can actually afford to buy the house can purchase it as opposed to normal marketing time when you also include those who cannot afford to buy it, but can borrow the money to buy it. "

 

[Carnivore]

Carn... Ouch! I had to read both of those three times. Worse than a few grammar glitches, you've created two new types of value. "Normal Market Value," and "Disposition Value." Do you have definitions for them both? It makes no sense at all to claim the possibility of a reduced marketing time by supposedly marketing to a "more narrow range" of buyers. Explain how reducing the pool of buyers decreases marketing time? Good luck on that one.. .. It must work just the opposite. One has to INCREASE the pool of possible buyers, by making the property more affordable and/or better marketing itself, in order to reduce marketing time. Using "minimally adequate methods" is *** backwards. To successfully restrict a marketing time, it may take both reducing the listing price AND increasing, or maximizing, the marketing methods used, not minimizing them.

So now I am partially going to answer one of my Mentors, Mr Feet! Itsnot a complete explanation, but one that gets people thinking about how I came up the additional statements within my reports. Liek I said earlier, I am not picckin this stuff out of my buT T.

I give you a quote from the defintions section of the current USPAP:

MARKET VALUE: a type of value, stated as an opinion, that presumes the transfer of a property (i.e., a right of ownership or a bundle of such rights), as of a certain date, under specific conditions set forth in the definition
of the term identified by the appraiser as applicable in an appraisal.

Comment: Forming an opinion of market value is the purpose of many real property appraisal assignments, particularly when the client’s intended use includes more than one intended user. The conditions included in market value definitions establish market perspectives for development of the opinion. These conditions may vary from definition to definition but
generally fall into three categories:

1. the relationship, knowledge, and motivation of the parties (i.e., seller and buyer);

2. the terms of sale (e.g., cash, cash equivalent, or other terms); and

3. the conditions of sale (e.g., exposure in a competitive market for a reasonable time prior to sale).

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.

-----------------------------

PRICE: the amount asked, offered, or paid for a property.
Comment: Once stated, price is a fact, whether it is publicly disclosed or retained in private. Because of the financial capabilities, motivations, or special interests of a given buyer or seller, the price paid for a property may or may not have any relation to the value that might be ascribed to that property by others.

------------------------------

VALUE: the monetary relationship between properties and those who buy, sell, or use those properties. Comment: Value expresses an economic concept. As such, it is never a fact but always an opinion of the worth of a property at a given time in accordance with a specific definition of value. In appraisal practice, value must always be qualified - for example, market value,
liquidation value, or investment value.

-----------------------------------

Along

Standard 1-C comments

and

Statement 6

and there are soeme AO's that talk about marketing time.

 

[Carnivore]

Ziggy,

This is a good thread to read.

http://appraisersforum.com/showthread.php?t=161246

 

[Webbed Feet]

One of today's REO assignments included a client-imposed market exposure period of 60 - 90 days. All of the 6 (rather than 3) sold comparables were marketed less than 2 weeks, and all sold at list price or slightly above list price with nominal concessions.

Typical exposure is being defined as less than 1 month and so the client-imposed exposure would have given the property more time to sell than was needed.

If client exposure is greater than market exposure, the retrospective list date would have been prior to the actual market-related list date. Longer exposure should be defined as enlarged exposure with the potential for a higher sales price. However a typical property marketed during the exposure period was not discounted, so who cares what the value would be if the property had been exposed longer than necessary?

Does everybody have me on ignore?

No, but some might be considering it.. More likely, nobody wants to take the time to try and get you to stop overthinking this. I'll give it a whack for funnsies and see if you can arrive at your destination with a nudge versus a shove. Shall we use a story problem?

Ok, assume a subject has your exact same parameters as you've outlined above with only one exception that we will get to in a moment. You research comps and have three wonderful model matches by a competing builder!

Comp A) Closed one week before your effective date. Price $100,000
Comp B) Closed one week before your effective date. Price $100,000
Comp C) Closed one week before your effective date. Price $100,000

All closed comps above were listed and went pending in two weeks. Closing times varied slightly, but all were typical.

Current Active Listing A) Asking price $105,000
Current Active Listing B) Asking price $105,000
Current Active Listing C) Asking price $108,000

REO Problem One: Client designated hypothetical exposure time 60-90 days. What is the market's exposure time MV on your effective date, and what is the client dictated exposure time MV on your effective date?

REO Problem Two: Client designated hypothetical exposure time is 365 days. What is the market's exposure time MV on your effective date, and what is the client dictated exposure time MV on your effective date?

REO Problem Three: Client designated hypothetical exposure time is 5,000 years. Assume, hypothetically that the structure is still current modern construction per current building codes and undamaged after sitting there for 5,000 years. I suppose we'll also have to assume the listing was handed down through generations of "agents" until the concept of real estate agencies was finally invented and computers made MLS's possible. Prior to that they advertised with papaya paper or cloth. What is the market's exposure time MV on your effective date, and what is the client dictated exposure time MV on your effective date?

 

[Webbed Feet]

What is an FRT and what is not?

Carnivore: That you took the time to provide these defintions is greatly appreciated. I have a question that pertains to your comments but only somewhat to this thread.

I never did understand (sorry as I am to admit it) the issue of FRT's and knowing which appraisal reports are going where and subject to which guidelines.

Read from page 12 on. The significance of a FRT to an appraiser is only the question of is an "As Is" value required in addition to another opinion that may be based on a HC or EA? For example, does a proposed new construction appraisal always have to include an "As Is" value of what is there the day of your "Effective Date" or not?

http://oregonaclb.org/aclb_prod/images/stories/pdf/Summer2005Newsletter.pdf

Is a REO report with the intended user being a private lending institution, and the intended use being to establish a listing price (as far as I can figure) {Again, and sorry to say this, but if you are taking on REO assignments and do not know the "intended use," you are violating USPAP ... so stop taking them on until you know the intended use.} based upon the opinions of value expressed in REO# 3 and #4 subject to those guidelines if the property is marketed and subsequently sells baed upon the REO value(s) in #3 and #4 of the report, consequently required mortgage insurance by a "federally insured..."?

Again, your question is due to the fact you don't know the intended use and related SOW. Mazz, you can't work that way. If a client intends to use an REO appraisal to then be the risk information for an underwriter for underwriting a NEW loan to an unidentified future buyer then don't you think that is something any appraiser would be required to be informed of prior to accepting an assignment? Or would you anticipate any REO marketed and sold property to involve a borrower coming in with a different lender that causes a different appraisal for the sale to be obtained? IF the later, why would you get hung up on values 3 and 4 needing to somehow involve FRT standards for a unidentified buyer that is obtaining a different appraisal for the sale?

 

[Webbed Feet]

Oh, but it makes perfect sense. With a very short time to dispose of the property, only those that can actually afford to buy the house can purchase it as opposed to normal marketing time when you also include those who cannot afford to buy it, but can borrow the money to buy it.

Carn,

LOL... No wonder this is so hard to discuss when our brothers change the target midstream and I'm the one that has to call them on that to try and get things making sense again. Your "Normal" exposure time and your "Client Imposed" one in that post had relative 90-180 days then 60-90 days of exposure. Point in fact, those two ranges both overlap at 90 days. Meaning a reasonable exposure time was included within both ranges. Now, Brother Spud may attempt to redefine that on me into a "very short time," implying the client imposed time would exclude anyone other than a cash buyer.................... but that wasn't very much on point for a response to my post if anyone asks me. Sorry, but in my area (and in my profession) people that can obtain loans ARE people that can "afford" to purchase real estate. Your example did NOT example a "client imposed" exposure time so extremely short that it restricted the market to only cash buyers because nobody else had time to obtain a loan.

Now that we are past that one.... ... Your definition of "Deposition" value bothers me. As worded, I read something that is comingling present and future tense.