Bill would let appraisers 'round up' home values

[George Hatch]

I thought you didn't like to rewrite history? Why the attempt to reword and/or shorten the MV definition? It is a hairball, I agree. I think the FIRREA MV definition should be history, but I don't think appraisers should be the ones to rewrite the history ahead of time.

The GSEs are stuck with legacy legislation & regulation, including the definition of MV, memorialized on the forms.

REOs being sold on the open market via realty agents and MLS listings to owner-users and investors alike can and do establish the prevailing pricing trends under certain circumstances.

Deal with it.

 

[hastalavista]

Why would someone be advocating that reos are stigmatized and that upward adjustments should be considered when using them. Only reason I can see is to stop appraisers from killing deals due to those pesky predominant REO sales. By the way Mentor, nice try morphing stigma discussion into condition adjustments.

You should do a little research on this forum before shooting off half-cocked.
There are a number of appraisers (who are not brokers or real estate agents) who are advocating that the definition of market value means that REOs are not substitutes; some argue they should not be considered (although that group has diminished... I believe) when completing an assignment that calls for an opinion of market value for mortgage-lending purposes. Forget about stigma adjustments; they'll travel miles to find a non-REO sale and argue it is better than the 5-REOs next door to the subject. Mentor's position, compared to that, is mild and traditional... and has absolutely nothing to do with his other hats (agent or broker). So that's why I'm calling you out on your statement.

 

[JSmith43]

REO are sold "as is" and the lender uses a limited warranty deed. I have yet to see an exception, probably there have been some, even if by accident.

In the non REO World, the standard is a General Warranty Deed. Is this worth something, or do the lenders do this for sport? I can offer support based upon a live interview with respect to the market reaction to the difference in the type of deed, ("as is" status should also be addressed) as follows:

I was in a live CE class on Thursday, full of RE agents & RE brokers.
The instructor happened to be an investor that flipped REO & had an insurance background. The topic of title insurance was being discussed. I raised my hand

Approximate question asked: "You made an accepted offer to purchase an REO. If the investor offered to give you the option of a general warranty deed rather than a limited warranty deed for an extra $500. added to the purchase price, which would you choose?"

In a heartbeat, he replied: "I'd pay the extra $500 for the General Warranty Deed from the lender/investor."

He went on to explain the hassle of correcting title problems down the road, since having an owners policy still means the owner has to get the title company to act, generally in a timely fashion. This, I knew first hand. In an otherwise inquisitive class, no one challenged or questioned the exchange. They just listened and learned.

One more bur in the saddle for REO=Market mantra crowd. In gosh awful markets, an appraiser may not be able to detect the difference, but there are built in differences that have plenty of market support. "As is" sale vs owner occupant disclosure and normal (i.e. mechanicals working at time of closing) & liability for non disclosure of material facts are elements of comparison where it is highly likely that market support could be developed. The difference may be small, but it is not logically, zero. That part isn't stigma. It is clearly identifiable.

I use REO comps from time to time, when they introduce less variability than available non REO comps. I am not the decider. Observed market behavior controls my decision making on the matter.

It appears to me that the REO= the market crowd are the ones doing significant rounding to get to their position. No "rounding" legislation needed!

 

[PropertyEconomics]

Why would someone be advocating that reos are stigmatized and that upward adjustments should be considered when using them. Only reason I can see is to stop appraisers from killing deals due to those pesky predominant REO sales. By the way Mentor, nice try morphing stigma discussion into condition adjustments.

It could be that REOs dont meet the definition of market value, and therefore if analysis of the market shows an upward adjustment for condition of sale is warranted one should be made. Some throw around the word stigmatized here .. the fact is it is the condition of the sale (terms, marketing, duress, motivation) that may result in the need for adjustment when REOs are measured against transactions which are market based, adequately exposed sales with no undue duress on any of the parties.

That is basic appraisal 101 ...

 

[Mr Rex]

REOs are stigmatized, once the buying public realizes that they can be had at below "market", no one will pay full "market". At that point, the "traditional", "typical", "arms length", whatever you want to call non REOs become stigmatized, in that no well informed buyer would dare pay "market price". for a similar property. I think they call it the principle of substitution. :new_smile-l:

 

[PropertyEconomics]

REOs are stigmatized, once the buying public realizes that they can be had at below "market", no one will pay full "market". At that point, the "traditional", "typical", "arms length", whatever you want to call non REOs become stigmatized, in that no well informed buyer would dare pay "market price". for a similar property. I think they call it the principle of substitution. :new_smile-l:

Rex .. I agree with you in theory .. but the fact of the matter is there are market transactions occurring all the time in my market even when similar REO properties are available. It does happen so the market does not become totally "stigmatized" ... in my experience.

 

[Mr Rex]

I agree, but the current market in many areas has been shaken like a snow globe, and the "buyers acting in their best interest" now consider non REOs as "stigmatized" and will not consider a "traditional" sale. My point is that stigma works in both directions, and some of the interpretations of "market value" tossed about here ignore the market in favor of higher value...:new_smile-l:

 

[PropertyEconomics]

I agree, but the current market in many areas has been shaken like a snow globe, and the "buyers acting in their best interest" now consider non REOs as "stigmatized" and will not consider a "traditional" sale. My point is that stigma works in both directions, and some of the interpretations of "market value" tossed about here ignore the market in favor of higher value...:new_smile-l:

Market value does not mean higher value .. if the REOs represent Market Value then they do ... if they dont then they dont ... as I have stated measurement should be made to see IF an adjustment for market conditions is warranted.

 

[JSmith43]

Have a great weekend, guys!

Don't take any work (or disagreements) with you over the weekend. I won't.

Outdoor tennis Monday. If it doesn't rain, all will be well with the World!

 

[Terrel L. Shields]

REOs being sold on the open market via realty agents and MLS listings to owner-users and investors alike can and do establish the prevailing pricing trends under certain circumstances.

That still does not meet the tests made under the fannie mae "market value" definition. And as Diana Orlick reported only this week, on average, the REO sells for 35% LESS than market value and that applies in every region of the country although in some regions it was as low as 15%....it is still REO = BELO MV