BPO and Appraisal

[J Grant]

Which is based on being "equally desirable". REOs and Shorts are not equally desirable. That is why they typically sell to investors who inturn sell them at MV.

A very sweeping blanket statement!~ Maybe that is true for your area, but not all areas, and in my area, it is true for some subdivisions and home types but not others. In some subdivisions, REO and short sales are very desireable and sell to owner occupants, and often sell faster than non REO sales for a number of reasons.

And your statement about investors who in turn sell them at MV...be careful with that. That again assumes that MV is always the highest price. Sometimes investors sell them at MV, and oftentimes they sell them above MV (or try to). Did you read the post where FBI agents are posing as straw buyers now and trying to uncover fraud in flipping ? Be careful in assuming an investor resale is MV and not above...

LOL...really. Call BoA up and ask them about the motivations of that REO sale down the street and how why they decided to sell at $50k below all the other similar sales. A homeowner can't get through to talk about his mortgage much less some appraiser calling to waist their time looking through all the files of a comp.

I like to use comps with a tight range of value (and most times I can find them). I would not use an REO sale that sold 50k below the other comps, unless it was such a high priced property that 50k below was in proportion to price levels.

 

[residentialguy]

For example, if the market data indicates that the typcial buyer/typically motivated buyer for my subject would not consider REO's as a substitute, then I exclude them in that report. But that is the market telling me that after research, which is different than me starting the appraisal with the view that REO sales should be excluded because they are not the same sale type as a traditional sale.

I use REOs in my grid, but only when I am lacking in good sales that motivations of buyer/seller can be verified...or to CYA and show how it is not a good sale, even though it has similar physical characteristics.

You keep mentioning price. I don't look at the price. The REO could sell over the traditional sales...I don't care. You can have identical REOs sell at 75k variances.

Talk about the REOs, show there price ranges and show their influences on the RE Market. Use them and attempt to the best of your limited ability to adjust it to reflect MV of the subject.

 

[J Grant]

Investors make up the typically motivated buyers in some areas...they buy to rent and to rent and hold for future appreciation, as well as to flip. If an investor is a likely buyer for your subject, then find other comps that investors have bought. Let your subject and the market data determine your buyer profile and what type of sale they consider for subsitutes, thus your choice of comps will be supported by that.

Comp choice and use of, or exclusion of sale type should be supported by market data, which is then defendable.

 

[residentialguy]

I like to use comps with a tight range of value (and most times I can find them). I would not use an REO sale that sold 50k below the other comps, unless it was such a high priced property that 50k below was in proportion to price levels.

 

[J Grant]

Res Guy, your post above the cherries, I actually agreed with, lol!

 

[residentialguy]

Good. I guess that's all we will agree upon. I need clarity of motivation of the buyer/seller. I would throw out any sale that is different priced and I couldn't find out motivation...which is an inherent problem will all REOs and SS. And no, the definition of typically motivated is not a moving scale...same with undue stimulus.

 

[J Grant]

And no, the definition of typically motivated is not a moving scale...same with undue stimulus.
__________________
Am not sure what you mean by a moving scale...however typically motivated and undue stimulus are defined by the forces impacting the market.
The very term, MARKET VALUE, encompasses the word "market", and markets are always changing, never static.

Thus, the definition of MV relates back to the market, and every analysis of markets recognizes that they are always changing ( captured in a moement of time, the effective appraisal date) . Part of the changing nature of markets are the large number of REO and short sales present now. In a few years, that inventory will be gone, and other sales types or trends will dominate the market.

If you insist on using a static or fixed definition of "undue stimulus", where do you get it from? FIRREA does not provide one. To the best of my knowledge there is no gold standard, precise definition in USPAP either. And the same goes for typically motivated. Though the term typically motivated is often used, where is the official, static, standard, unmoving definition? You personally define it often in your posts as the traditional sale or traditional buyer, yet the term traditional sale or traditional buyer does not appear in FIRREA or USPAP.

I had a very great USPAP instructor tell our class that USPAP left definitions of key words delberately broad, because these key words are always being shaped by changing markets, and thus a precise definition could never encompass the fact of that dynamic.

 

[residentialguy]

Res Guy, your post above the cherries, I actually agreed with, lol!

wow...where in USPAP or FNMA for that matter, does it state that it is the best appraisal practice to choose our comps by price?



And there is nothing normal or typical about these times. A sale under forced conditions (ie REO, Short Sale) represents a forced-sale value and not consistent with a “normal” or “typical" sale (typically motivated buyer/seller, no undue stimulus) - a fair sale.

There are many definitions of value, some of which are market value definitions.

The are specific conditions to this presumed sale in the definition of MV
Basically 3 categories.​

1. the relationship, knowledge, and motivation of the parties (i.e., seller and buyer);
2. the terms of sale (cash, etc)
3. the conditions of sale (exposure, etc).

Comps need to reflect this as well. When they don't, you have to adjust for market variances of these conditions.

 

[residentialguy]

You need to understand the motivations behind your comps. It is not just for the subject. You do not know the bank's motivations, the agent doesn't know and neither will any of the bank's phone monkeys, should you even get one to answer the phone. (Not to mention that many times the bank is going by a bad BPO).

Motivations play a critical role in whether or not that sale is relevant!

Unknown = unreliable

 

[J Grant]

You need to understand the motivations behind your comps. It is not just for the subject. You do not know the bank's motivations, the agent doesn't know and neither will any of the bank's phone monkeys, should you even get one to answer the phone. Motivations play a critical role in whether or not that sale is relevant!

unknown = Unreliable

What in the world is unknown about a bank's motivation in selling an REO???? Their motivation is TO SELL IT.