Foreclosure Sales

[JSmith43]

Got any idea where I can get a vest? lol

SS

Becoming a certified USPAP instructor and attaching a copy of a generous prepaid legal policy to your reports might make for a good "MAD" defense. Perhaps that is more of a suicide vest than a bullet proof vest

 

[RSW]

In this particular market there are sales within the same subdivision that are REO's and then there are a few arms-length sales. If these competing properties are in similar condition there appears to be little if any differance in the final sales price.

It is possible that those REO sales are arms length sales. What is market value?:icon_question:

 

[J Grant]

hey, in this market, many times, foreclosure, or more correctly, REO sales are the new "normal" So to not use them is imo misleading. And yes, an REO is arms lenght, I have no idea why some people think it is not. The buyer and seller don't know each other, most times the REO is listed on MLS and usually the list price is similar to other homes, or a bit less to encourage offers. I typically make no adjustment for them, unless the market is showing a clear adjusttment. Remember, the definition of "typcial" buyer, if REO sales make up a good percent of the market and are the same model types and construction etc as other homes, the typical buyer will for sure consider them as an alternative.

 

[Amy Perkins]

Use what is typical of the market, if foreclosures are typical, then that is your market.

 

[JSmith43]

The target is described in the definition of MV. As long as REO sales are calibrated often enough against transactions where the buyer and seller are typically motivated, informed, not under undue pressure, then, sure, use them, client permitting. I'm just skeptical that there isn't going to be a measurable difference in SP most of the time.

This is a good topic to poll. Is there a difference in SP evident between REO's and non-REO sales with a good model, site and locational match?

If there was an REO and a non-REO sale, locational and physical attributes equivalent, would you pay a dollar more for the non REO? I certainly would.

Heck, I prefer homes under responsible ownership, homes that aren't vacant, homes that haven't been flipped recently, homes that haven't been foreclosed lately. The premium might only be a percent or two, but it would be more than a tie breaker for me.

You don't get a very good property disclosure, heck, the place may be haunted

 

[J Grant]

Mentor, it is not what you, or I perfer, but what typical buyers perfer. The old days where REO's are the oddball, neglected homes are over. The REO"s are often just as nice as the for sale by owners. And yes, some buyers won't consider them, but many will . Let's say, there are 4 recent similar sales to the subject, and 2 are REO's or short sales, and 2 were sold by the owners. I probably would not adjust the REO or short sale, just let the values all fall out where they would after features like views etc are adjusted for. Why would you adjust the value of an REO up, up to what? there is most likely going to be competition from REO's and short sales in most markets for at least a year or more, so why adjust them? Adjust them to what we think they "should" sell for? Who are we to decide that? The market is telling us what homes are selling for in the area, a market made up of owner sales, short sales and REO sales in many cases now.

 

[JSmith43]

Mentor, it is not what you, or I perfer, but what typical buyers perfer. The old days where REO's are the oddball, neglected homes are over. The REO"s are often just as nice as the for sale by owners. And yes, some buyers won't consider them, but many will . Let's say, there are 4 recent similar sales to the subject, and 2 are REO's or short sales, and 2 were sold by the owners. I probably would not adjust the REO or short sale, just let the values all fall out where they would after features like views etc are adjusted for. Why would you adjust the value of an REO up, up to what? there is most likely going to be competition from REO's and short sales in most markets for at least a year or more, so why adjust them? Adjust them to what we think they "should" sell for? Who are we to decide that? The market is telling us what homes are selling for in the area, a market made up of owner sales, short sales and REO sales in many cases now.

The buyers may be typically motivated and the principle of substitution comes into play for them and, of course they consider REO offerings. But that is only part of the equation. If a seller is not typically motivated, say, needs to sell quickly, are they going to negotiate with the same vigor as if they were not under distress?

Do you think REO sellers are typically motivated? It's not like they want to move to a different school district if they get the right price.:icon_mrgreen:

I see you are located in FL. Maybe FL is so saturated with short sales and REO that there is minimal stigma. Still, that leaves the part about motivational differences of the sellers up in the air.

Just because of luck, the sum total of REO liquidation specialists might negotiate and yield the same results as a typically motivated seller, even though the REO owner most likely has different time horizons, and a net return goal perhaps linked to a certain target goal (percentage of loss, something like that).

It would be convenient if REO comps and non REO comps were inter-changeable and required no adjustment, but, I believe the market behavior is the only test to determine that. I remain skeptical.

 

[J Grant]

Mentor- again, if REO sales are prevelant, the behaviour of their sellers, the banks, are typcial seller motivation, and private sellers, who are realistic about the market, adjust their behavior and motivation ( negotiating ) accordingly. Of course, we are talking about a market with enough REO/short sales that it matters. In a market with an isolated short sale here and there, yes, I would adjust the REO. But in a market where perhaps 1/3 of the comps are REO's, unless the difference was huge, I would not adjust, for say, a 10% sales price difference, what am I adjusting them to? A "normal" sale? They are a normal sale in that area. Re a seller negotiating with the same vigor- in an oversupply market with REO's, your typcial seller does not negotiate with vigor and hold out for their price ( I know, I just sold a home in that kind of market ) That is where appraisers need to anaylize and understand the market they are really dealing with. Even in some areas of S FLorida where I appraise, in som subdivisions, there are many REO's, in others, almost none, so I have to anaylize each one on acase by case basis. And the motivation of the banks is often similar to the owners...get a decent price in a timely manner. Most REO's are sold through MLS and realtors, so their markt exposure/person doing the negotiating on behalf of the seller are similar to say, an owner out of town or any other owner serious about selling. Many owners heavily rely on their realtors for negotiating and some leave it almost entirely up to them. Where there is a substantial difference is some short sales, those I might adjust as they truly can be different terms involved, but again, if many are occuring, the prices start not to be that different among sales as the truly motivated ( typical for the market sellers) lower their prices to close to the short sales that are prevalent. In that kind of market, you do see homes listed high, that don't get reduced, sitting on the market for a year or more, those sellers may have been typically motivated in the booming market ( negotiating with vigor, waiting for a good offer etc) but they are not typical sellers for THIS market, and their homes are pretty much ignored by buyers, and usually the listings expire or are cancelled, unless the seller gets serious, lowers the price substantially, and THEN he becomes a typical seller, with much the same motivation as the bank holding an REO. They both want the same thing at that point, to sell the home, within a reasonably short time ( aprox within 3 months, which is short for a market where overpriced home sit for years) at whatever price they can get.

 

[Terrel L. Shields]

The target is described in the definition of MV. As long as REO sales are calibrated often enough against transactions where the buyer and seller are typically motivated, informed, not under undue pressure, then, sure, use them, client permitting. I'm just skeptical that there isn't going to be a measurable difference in SP most of the time.

Mentor is right on.
Just because liquidation sales exist that sell (apparently) for close to "market value" hardly makes them arms length sales. Just saw one close. Sold 2 yr ago new. $159,900. REO. Offered for $139,000. Buyer offered $102,000. Bank took it. A small local bank would likely have held on to it for a higher price. Big national banks are panicky and will jump on it. It has created a bimodal market. Local seller = 20% more than National seller and those local sellers are in house lenders who will finance what they sell. CW/Wamu/their ilk won't touch the same house they are dumping.

 

[J Grant]

Terrell..okay, in your example, the house that sold for $102,000, what are other similar houses selling for in that subdivision, not bank owned?

You keep calling REO's liquidation sales. But their presence effects all sales prices. In other words, in a healthy market, REO sales maybe make up 5% of the sales. They are snapped up by investors os savvy buyers, the rest of the market pretty much ignores them. Now, things have changed. Due to economic condition, low buyer demand, etc, sellers can't sell their homes for more than the mortgage and are just walking away. So now, the number of homes for sale by REO's are 40% of the market. And they are being bought by regular buyers, not investors or flippers. SO the prices these REO's go for, become the prices many private owners start selling their homes for, in order to be competitive. Therefore, both kinds of sales should be included in a market like that. Most of the time, it is not a bimodel market, real buyers and sellers don't act like that. A bimodal market would mean owner sales selling for 150k and REO's selling for 100k. Well, that of course would be easy to figure out. But a real market being influenced by the conditions that create REO's respond differently. the homes were not selling for 150k. They were on the market 10 months, etc. Then a few homewoners defaluted, and their homes became REO's. the banks told the realtors to price them to sell, and the homes sold for 130k. Now, the truly motivated homewoners see the competition selling for 130k. so they reduce their prices and sell for 130k. Now, the new wave of RE's hit the market, and they sell for 120 k. Now, the truly motivated homewoners are willing to sell for 120k. And so on, till the market reaches the lowest level it will sustain, enough buyers deem it attractive to start bidding the prices up again. I am an appraiser for 16 years, I sold a very desireable home recently and had to list it for a price that would compete against the REO's when I truly wanted to sell. and guess what, it sold. Prior to that, it sat on the market for 9 months. The overpriced homes there are still on the market. So what was setting the values in that area? And when I bought my present home, those homeowners serious about selling kept lowering their prices to compete against the REO's. The ones who choose not to, keep their prices high, and their homes sit unsold Are teh REO's selling liquidation sales? No, they are homes sold by motivated sellers, the banks, exposed to buyers through MLS, in open competition against all other listings. Banks also want to get as much money back for the homes as they can, and most of the time, the REO's don't sell for much less than "regular " sales, in a truly declining market, because "regular" sellers are constantly lowering their price to stay in competition with the REO's.