Comparable or not comparable?

[Richard Carlsen]

Jo Anne

No matter how one spins it, a bank or lender owning a single family residential dwelling is not a "typical" owner or seller and is not selling the property for the same reason as a "typical" owner-occupied house is sold. Whatever is said, the bank is selling the property because it got ownership by default and not choice. The bank does not want to own the property and therefore when the bank gets rid of the property, it has a non-typical motivation for selling.

Even though REO's may constitute a majority of the SFR sales in a market, that does not qualify them as a Market Value sale under the FNMA definition of the Market Value. Have I used them? Certainly but only as additional support of market levels and only as part of my reconciliation of value.

 

[The Warrior Monk]

Simple way to answer the question....

Forget, for a moment, you are an appraiser. You are now a buyer. There are several properties on the market that meet your needs. All are identical in features, amenities, and terms.

Offering #1 List price $100,000
Offering #2 List price $105,000
Offering #3 List price $110,000

As a buyer, if all things were equal...which one would you buy?

Offering #1 is an REO
Offering #2 is a short sale
Offering #3 is owner offering

You're setting rules for a specific instance that may not be true in all cases.

Short sales and bank-owned properties may not have ever hit the open market, which the above scenario is presenting. Investors often go directly to the buyer and/or lender, throw out an offer, and buy the property before it ever hit the open market. It was never listed nor available to the typical buyer.

In other instances, buyer pool is restricted to first-time home buyers, or restricted to persons making income below a certain threshold...thus the property may not be available to all buyers.

These are examples why it is necessary to verify the conditions under which the transactions took place.

It is also important to be careful not to mix up value definitions with the sales that do not fill that particular value definition (auction, liquidation, etc.).

 

[The Warrior Monk]

Personally, if I knew a case was going to court I'd probably decline it, who needs the headaches.

Send it my way.

Unlike many AMC and MB clients, when it comes to assignments that may be litigated, you can actually charge for time, expertise, and aggravation. Litigation assignments typically include at least on appraisal, review, and testimony; totally fee for assignments run into thousands of dollars.

The high fees in the appraisal business are to be found in the complex assignments, not the cookie-cutter ones that everyone can do.

 

[J Grant]

Davbid- very true, only problem is, they can subpeona you and then you have to testify for free! but if you can charge for court time, it can be good.

 

[Mike Garrett RAA]

And if the Queen had had balls she would have been the King. Give me a break, the market is the market. Part of our problem, as appraisers, is we fail to use common sense. No wonder there is so little confidence in us.

 

[The Warrior Monk]

David- very true, only problem is, they can subpeona you and then you have to testify for free!

Expert testimony cannot be supeonaed. Any attorney with half a brain that pays a few grand for an appraisal and/or review is not going supeona the appraiser they hired, only to have that appraiser get on the stand and be a hostile witness.

 

[The Warrior Monk]

And if the Queen had had balls she would have been the King. Give me a break, the market is the market. Part of our problem, as appraisers, is we fail to use common sense. No wonder there is so little confidence in us.

Market price does not equal market value.

As valuation experts, we are supposed to recognize that. To not recognize that is to throw public trust to the wind.

 

[J Grant]

david, I know many appraisers who have been subpeoned, and if you are, you can't refuse to testify, and an appraiser would have to be an idiot to act like a "hostile witness".

 

[The Warrior Monk]

david, I know many appraisers who have been subpeoned, and if you are, you can't refuse to testify, and an appraiser would have to be an idiot to act like a "hostile witness".

I'll repeat...expert testimony cannot be supeonaed.

The appraiser will have to answer the questions the judge requires them to answer. Given that the appraiser does not have to prepare for the case, nor can they prove the appraisal that was handed to them is their own, their is little to talk about. Since divorce trials are typically decided by a judge, the attorney risks killing their own case.

Some appraisers get dragged into these cases and provide expert testimony because they don't know any better.

 

[Doug Wegener]

Wrong

Sorry to disagree with you Mike but while these sale are certainly part of the "Market", they are not the part that we are appraising. 2, 3 and 4 units houses are also part of the market but if the assignment is to form an opinion of Market Value on a SFR, you would not include multi-unit houses in the mix for consideration. If the the assignment calls for Liquidation Value, then you would consider short sales and repo's. However, reading the FNMA definition of Market Value, you will note that condition #1 is that the buyer and seller are typically motivated. I doubt that the seller/lender in a short sale or an REO property meets the definition of being "typically" motived.

The definition also says that the "price is not effected by undue stimulus." I would consider that a short-sale whereby foreclosure is looming on the property for the owner and the lender must make the decision to take less than is owed, certainly constitutes "undue stimulus" to the parties involved on the selling side. In addition, a lender with a growing portfolio of foreclosed properties that it needs to get off of the books in order to get cash flowing in rather than out and willing to consider offers at Liquidation Value, would certainly be considered to be under significant "undue stimulus."

I've never seen Richard be wrong before but he is this time. REO's are the market in many neighborhoods around here.