Justification for Declining Market

[Mztk1]

In the market 2006 and earlier most REO homes were disasters. It was easy to say it would not appeal to the typical buyer. These days, however, more average condition homes are entering into REO status. You have to apply the principle of substitution. Buyers may make decisions based on their emotional attachment to a property, but, when faced with a multitude of homes on the REO market in similar condition to those that are being sold by the typical seller, well, what are they going to buy? The cheaper REO.

My market too. But you can't make the decision for them. You have to analyze the market and be sure they have already started making that decision before you start saying the REOs are substitutes. They are only legitimate substitutes if the market views them that way, not if us as appraisers think the buyers should be viewing them that way.

 

[c w d]

My market too. But you can't make the decision for them. You have to analyze the market and be sure they have already started making that decision before you start saying the REOs are substitutes. They are only legitimate substitutes if the market views them that way, not if us as appraisers think the buyers should be viewing them that way.

Absolutely, it's all predicated on the data.

 

[Kevin Keck]

The existance of so many foreclosures and REOs in your market is an indicaction of declining market by itself.

I agree with Moh.

Although it is an interesting dilemma for those of us that use median sale prices to track our markets. Should we take out those sales that do not fit the definition of market value? Most REO sales do not have a typically motivated seller and often times they are not good indicators of market. Maybe the best course of action is to run the data both ways. One data set including REO sales and another set excluding REO sales. I did this on an appraisal last week and the data set that including REO sales showed a 38 percent decline. The data set that excluded REO sales showed a 28 percent decline.

 

[chad hampton]

a lender must tell you what the criteria is for determining a "stable" or "declining" market. Do they want to know what's going on in the last 2 years? 1 year? 6 months? 3 months? They just can't come out and say 'is it stable?'

I know they do, but that question needs a basis point to go by.

Unless they do that, I don't get too bent out of shape over which box I check. I know others feel differently, but the boxes are meaningless to me. I usually say in most of my reports that values are 'stable to moderately decreasing'. a couple percent up or down is what I consider stable.