FNMA Active Listings vs. Pending Listings

[Charlie]

FNMA does not require the posting of listings in an appraisal report. However, certain client's do... Therefore, it is not a question of what FNMA wants, but what the client wants. To the best of my knowledge, FNMA is silent on the issue.

For Instance, Wells Fargo (RELS) states that they require presentation of "two relevant current pending sales and/or active listings to support the final opinion of value. The use of pending sales are preferred, however, active listings may be utilized when relevant pending sales are not available".

Seems like a good policy to me. At least it can be presumed that a pending sale, adjusted for a market derived SP/LP ratio, shows an action of a buyer (having made an offer), whereas an active listing (similarly adjusted) exhibits no actions of buyers whatsoever, EXCEPT that it for some reason, it has not sold yet.

I understand what you are saying but I disagree with you that this is a good policy. Typically I find that these types of lender requirements make for poorer quality reports more often than not. I should get to decide what comparables to place in a report, not the lender. I often find that there are 5 good closed sales and 1 good active or pending, or 4 good closed sales and no good actives/pendings. In those situations, adding in an active or pending just to meet a lender requirement lowers the quality of the report. A comp which is not one of the best available and is probably not a reliable indicator of value for the subject is being added into the report. Just because the lender says so.

The same goes for the "closed within 90 days" requirements that FHA and many lenders and AMCs have adopted. Requiring comps within 90 days to be used is a great requirement, unless the best comps are over 90 days, at which point the requirement causes the quality of the appraisal to be lowered because the appraisers are using comps that meet the requirement instead of the best comps available. I feel that the requirements to utilize actives and pendings and comps within 90 days which have been so widely adopted have done nothing to improve appraisal quality. The same goes for the MC form, UAD, etc, etc... Too many regulations and requirements just mess everything up.

 

[No One]

to support the final opinion of value. You can always find 2 listings or pendings to support your value. This in my opinion is a waste of time. Only time I find listings useful is when there are limted sales in an area.

 

[Meandering]

If you are using them to support the opinion of value, use pending sales. If you are opining marketing time use active listings. But it is interesting to me that when all the active listings were on the market at the same time as the closed sales, that buyers chose to pass on those properties in favor of the ones they did purchase. No one ever addresses, why, which should be a consideration in your choice of active or pending listings.

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[JSmith43]

The lenders might want to consider asking for an additional 2 sales comparisons that were contracted for and closed within x days OR if not available, 2 pending and/or listed comparisons.

Which would you rather have for available data? 5 closed sales or 3 closed sales plus two pending/active listings?

 

[incognito]

Bottom line is that the lender can ask for anything they want, as long as it is in the scope which we accept as the appraiser. The decision is ours. It is a business decision. You and I may agree that 3 sales and no listings are best. Or perhaps 3 listings and 3 sales are best, or 3 sales and 2 pendings. Whatever the client wants, they WILL get. It is up to you whether you want the job. We provide a service, and our service it to provide what the client wants. I do not know of a client who DOES NOT want Sales/listings/pendings in the report that WE feel are necessary. So, give them what YOU feel is necessary, AND give them what THEY feel is necessary, or DON'T accept the assignment!

 

[J Grant]

I always used to include listings, before lenders started asking for them. They show which way a market is trending, as well as being great support for what things are NOT worth, as well as what they are worth.

If you have a home on the market 300 days with no offers at a certain price, that indicates that price point is not market accepted . If you have the equivalent home with a pending or contingent contract at a lower price point with 100 days on marke, that shows market acceptance for that price point.


Sometimes, the pendings and contingents are the reduced price listings, other times they are more desireable and can be high price listings. Each indicates something about the market. If you have 20 active listings and none in contract, that indicates low demand, or at least low demand at the prices the homes are listed for.

A pending or contingent is great when it is a relevant comp choice, if not relevant, then should not be used. Provide an explanation for why.

 

[Mike Garrett RAA]

How about....Appraiser to provide 6 sales that closed within the last 60 days and are withing 60' of the subject property? Sounds really good, doesn't it? Realistic? Of course not.

The issue is....what is the market? It is what it is. Our job is to interpret THE MARKET. We should be the one who decides what is most comparable and then decide what WE need to support our value conclusion. If we feel active listings help support our value conclusion then include active listings. If we feel pending sales are a better indication, then by all means. include pending sales.

My personal opinion is the most recently closed sales that are most similar in location and condition are best. Logic? Properties can be listed at ANY PRICE. In my market agents will not disclose contract price on the advice of the Board of REALTORS® attorney. Only closed sales provide us with final sales price. Sure we can apply a list price to sales price (LP/SP) ratio but then that isn't specific to a single property.

All of my text books refer to appraising as an "art form" and not science. Granted, we can use science as part of our methodology but it still should be an "opinion" on the part of an experienced appraiser. All of the lender and/or AMCs requirements can't change that fact. If it was only a matter of numbers the AVMs would have replaced us long ago. Why hasn't that happened? Because they need US.

I like to use the analogy of the airlines. Why do they have at least two pilots? Why are the captains the most senior pilots? Because when it comes time for that decision on what to do it comes down to experience. God bless you Capt Sully! Sure there are automated systems to ASSIST the pilot but it's the pilot who makes the final decision. When I get on board an airliner it is always comforting to peek into the cockpit and see that silver haired guy sitting in the left seat.

The same thing should be true in our business. Experience trumps automation. More data is not necessarily more reliable than proper selection and analysis. You are welcome to quote me on that.

Happy Thanksgiving all.
The Old Guy

 

[J Grant]

How about....Appraiser to provide 6 sales that closed within the last 60 days and are withing 60' of the subject property? Sounds really good, doesn't it? Realistic? Of course not.

The issue is....what is the market? It is what it is. Our job is to interpret THE MARKET. We should be the one who decides what is most comparable and then decide what WE need to support our value conclusion. If we feel active listings help support our value conclusion then include active listings. If we feel pending sales are a better indication, then by all means. include pending sales.

My personal opinion is the most recently closed sales that are most similar in location and condition are best. Logic? Properties can be listed at ANY PRICE. In my market agents will not disclose contract price on the advice of the Board of REALTORS® attorney. Only closed sales provide us with final sales price. Sure we can apply a list price to sales price (LP/SP) ratio but then that isn't specific to a single property.

Mike, I agree with much of what you say but with a major point of difference, and for me it is not about lender guidelines but better appraisal practice. As you said, we are supposed to analyze the market. Part of the market is competition to the subject, in the form of active and pending/contingent listings. While the real SC price of a pending is not known, the fact that it is pending at a certain list price indicates buyer reaction, and that properties of that type are marketable and in demand at a certain price point.

Actives contain much valuable information. While it is true that an active listing can be priced at any price, the market reaction to the price is a value indicator. Thus, if we have an owner who insists their house is worth 500k when we appraised it at 450k, part of our support is that there are several model match homes to his priced at less than 500k that are still not in contract.

An overpriced home on the market for 300 days proves that the market is not accepting that price point. Short marketing times and more homes in contract indicates strong demand, long marketing times and few listings in contract indicates over supply/low demand. If the stated market conditions don't match what is actually happening with the listings, it points to an analysis problem.


All of my text books refer to appraising as an "art form" and not science. Granted, we can use science as part of our methodology but it still should be an "opinion" on the part of an experienced appraiser. All of the lender and/or AMCs requirements can't change that fact. If it was only a matter of numbers the AVMs would have replaced us long ago. Why hasn't that happened? Because they need US.

I like to use the analogy of the airlines. Why do they have at least two pilots? Why are the captains the most senior pilots? Because when it comes time for that decision on what to do it comes down to experience. God bless you Capt Sully! Sure there are automated systems to ASSIST the pilot but it's the pilot who makes the final decision. When I get on board an airliner it is always comforting to peek into the cockpit and see that silver haired guy sitting in the left seat.

The same thing should be true in our business. Experience trumps automation. More data is not necessarily more reliable than proper selection and analysis. You are welcome to quote me on that.

Happy Thanksgiving all.
The Old Guy

See above comments, Happy Thanksgiving too!:icon_lol:

 

[Mike Garrett RAA]

i don't disagree that listings are an important part of the market. I do analyze that data; however, gridding listings in an appraisal report is, in my opinion, a waste of time. Which would you rather see...an over priced active listing or a slightly older closed sale...all other things being equal?

 

[J Grant]

i don't disagree that listings are an important part of the market. I do analyze that data; however, gridding listings in an appraisal report is, in my opinion, a waste of time. Which would you rather see...an over priced active listing or a slightly older closed sale...all other things being equal?

I agree that sometimes gridding a listing is a waste of time and that an actual closed sale on grid makes more sense.

As far as clients go, rather than gridding listings, a sep listing analysis section would be more relevant, (not the silly MC form).