Disposition Value Form

[residentialguy]

I find the opposite, owner sales have a large variance for similar in some cases. Never one generic one size fits all where I appraise

Not after verifying and using comps that reflect the conditions of MV. Of course, you can't do that with REO sales. Bummer.

 

[Ken B]

"reflect conditions of market value"

What does that mean to you?

 

[Ken B]

(Didn't like the format...need to work on it more, but no time to spend right now.)

 

[residentialguy]

"reflect conditions of market value"

What does that mean to you?

Market Value definition for lending purposes, ie 1004 is the subject in a presumed sale of having no undue stimulus - to be a sale where neither party is assumed to be under heavy compulsion to engage in a transaction, nor to be under excessive duress. This point suggests that although willing and having a desire to engage in a transaction, the parties are under no high pressure or compulsion to do so. This is supported by the latest views of the Appraisal Foundation's definition of Market Value. As stated in the Second Exposure Draft of Residential Appraising in a Declining Market, dated 2/15/2012: Market Value - This is the standard definition used in most residential appraisals...This definition refers to a “fair sale” without “undue stimulus.” This definition is based on a transaction occurring under ideal market conditions.

The Government Sponsored Entities (GSE) have addressed the use of REOs and Short Sales and their relationship to the definition of Market Value. As indicated in Freddie Mac Bulletin 2010-23 and 2009-18, "Freddie Mac does not require an appraiser to use REO or short sales as comparable sales. However, if the appraiser determines that these properties are representative of the properties available to typical purchasers for the market in which the property is located, the appraiser must consider their use. When using an REO sale or short sale as a comparable sale, the appraiser must make appropriate adjustments to account for any market reaction to differences between the REO or short sale property and the subject property, including, but not limited to, differences in property condition. Additionally, the appraiser must consider whether there is any significant difference in the market’s reaction between REO or short sales and typical arms-length market sales".

High compulsion to engage in a purchase transaction by a party usually works adversely to that party's interests. A "highly motivated buyer" is likely to pay more than a rational price to acquire an asset. On the other hand, a "highly motivated seller" is likely to sell for less than he or she would otherwise accept for the sale of an asset. If there is a market reaction to this added stimulus which leads to a variance in price, then this variance may be adjusted in order to reflect the most probable price of the subject under all conditions of the presumed sale defined in Market Value. Distressed sales typically fail to meet the test of "market value" as the buyer and seller are not typically motivated, the seller has undue stimulus to sell. However , I never ignore them. All market data (including distressed sales) is carefully analyzed and considered. Often distressed sales are used as a comparable sale where there is a glut of distressed sales in the marketplace, if they are found to be the best available sales, however must be noted and taken into consideration that they are not as reliable of a sale since the motivations, which can vary greatly from bank to bank, can not be verified, as required by FNMA. The appraiser is still to find the most probable price of the subject under all conditions defined in Market Value and any Market reactions are to be taken into consideration in order to reflect Market Value, as defined.

 

[Ken B]

Do you default assume that all REO transactions reflect excessive compulsion or extreme duress?

 

[residentialguy]

Do you default assume that all REO transactions reflect excessive compulsion or extreme duress?

By the very nature of REO to date, yes...that's all one can logically assume as being probable. If they foreclose on a house, they have to sell it. That could change when they are allowed to keep the houses and live in them or rent them out and you can verify that.

How excessive....that's the problem...you can't find out the of how High that motivation is for a particular house. So by that very unknown, it's less reliable.

 

[Meandering]

[QUOTE="residentialguy, post: 2563438, member: 123200"]By the very nature of REO to date, yes...that's all one can logically assume as being probable. If they foreclose on a house, they have to sell it. That could change when they are allowed to keep the houses and live in them or rent them out and you can verify that.

How excessive....that's the problem...you can't find out the of how High that motivation is for a particular house. So by that very unknown, it's less reliable.[/QUOTE]

This from the very first post in the thread:

Example, in this same town but different neighborhood an REO was listed for $425K and sat for 150 days. Was in similar condition and size of other homes that sell for $415-$430K. Ended up selling for $359K. Asked realtor about initial pricing and final pricing, said "banks appraiser set the price" and sold much less because it's an REO.

So extreme compulsion to sell allows the house to sit for 150 days without attracting a buyer, and not dropping the list price?

Banks have 5 years to sell their holdings. Do you not have shadow inventory by you that sits for years and years? Do you think banks wait until the last 90 days of their holding period to hurry up and sell those properties at a discount?

 

[George Hatch]

All RE is local.

 

[residentialguy]

By the very nature of REO to date, yes...that's all one can logically assume as being probable. If they foreclose on a house, they have to sell it. That could change when they are allowed to keep the houses and live in them or rent them out and you can verify that.

How excessive....that's the problem...you can't find out the of how High that motivation is for a particular house. So by that very unknown, it's less reliable.

This from the very first post in the thread:

Example, in this same town but different neighborhood an REO was listed for $425K and sat for 150 days. Was in similar condition and size of other homes that sell for $415-$430K. Ended up selling for $359K. Asked realtor about initial pricing and final pricing, said "banks appraiser set the price" and sold much less because it's an REO.

So extreme compulsion to sell allows the house to sit for 150 days without attracting a buyer, and not dropping the list price?

Yes...unfortunately in OP's scenario , they thought they were listing it at what value they could sell it (as a REO), however they were listing it at market value of a owner occupied that the appraiser appraised it at.

 

[Deleted member 134708]

Talked with the bank and we are clear on what the assignment is for, to list and sell an REO property in 90 days or less. 90 days was always part of assignment but doesn't matter as why I stated market is under 90 days. What we couldn't agree on is the form in which the results will be communicated. They wanted a 1004 w/ REO because "that's how other appraisers do it" and "we've always done it that way." Declined assignment.

Here is reality: Around here, $400K 10 yr old stucco box tract home REO's sell at a discount to non-REO. This property is that $400K stucco box. Its condition is no different than all others. If this was a $120K 1980 ranch home REO, it would not sell at a discount because there are very few left at that price and a very large pool of buyers from investors to buying for kids to 1st time buyers. A $400K home doesn't have that same pool of buyers. Buyers in this bracket will not pay market value for an REO.

So this bank can go ahead and get another appraiser to appraise it, list it at market value once again, and have it sit there for 5 months with 8 price reductions just like the last one did.

I have a background in the financial sector. This assignment is akin to an NYSE specialist/DMM on an IPO. Your job is to find an equilibrium of bids and offers. If you set the price at $50.00, open the stock and it instantly drops 20% and closes $30, you did a terrible job (won't get into green shoeing). Whoever set the price at $405K, did a terrible job. Not interested in doing a terrible job so another appraiser is welcome to.

I will follow up on what this lists at and sells at.

Update: I declined order: Just came on market again. Assume another appraiser set the new list price to sell in 90 days. Price is $395K.

Nice job appraiser #2, didn't sell at $299K but will sell at $395K.