Lender wants value lowered based on active listing comps

[Couch Potato]

People in hell want ice water too! Your opinion of value should be based on closed sales...not listings.

Wrong! An opinion of value should be based on all the available market data, not solely on any one type of market data. (Forum rules prevent me form posting the rest of my thoughts.)

 

[Caterina Platt]

In marketing real estate, there is a common trend one sees when the listing was initially overpriced.

Your first time on the market is the time when historically, you'll recieve the most interest. If your offering is overpriced at that point, you may get showings, but likely no offers. Later on, as you've come to grips with reality and lowered the price, those who initially saw the property have likely moved on a purchased something else. Your listing becomes 'market worn'. It's not new and exciting anymore. Agents are used to seeing it pop up in MLS. As you continue to keep it on the market, buyers and agents take note of your persistence to sell, and statistics show, these properties often sell for less than their true worth. You might get low balled on the offers a bit, as you tire of the process and give in or the buyers/agents smell a bit of extra motivation and take advantage.

Considering this, along with the marketing times of your active listings, go back and take a look at thier marketing history. Is it accurate to apply the typical list to sale ratio to their current offering prices? Perhaps not. These sellers may be at or near rock bottom. This is why I absolutely hate this fudged adjustment. It makes the assumption that all listing prices are created equally. We know otherwise (and it is shown in your closed sales list to sale ratios).

I'm also a bit concerned about using the list to sales ratio from only one sale. If you've got to make that adjustment, then try and look for other similar situations. Do an analysis of properties that have been on the market for greater than 180 days for instance. What was the final list to sale of the asking price at the time they recieved the offer. Not thier first listing (pipe dream) price, but the final offer price. Bet it'll be a small ratio.

 

[Pamela Crowley (Florida)]

Uhmmm, if there are very similar properties available for less than what was most recently sold, as of today, the subject is NOT worth more than those substitute current offers. To those that believe otherwise, I would like offer you a bridge in Brooklyn....

 

[Lee Lansford]

Just wondering!

People in hell want ice water too! Your opinion of value should be based on closed sales...not listings.

Mike, are you stating that the Principle of Substitution is irrelevant? Are you stating that competing offerings can NOT constitute external obsolescence?

Mike, I suspect that we both know the answer to these questions is the same: No.


Lee

 

[ddnma]

I agree. If lenders essentially want a forecasting adjustment, they should change the form and make it more similar to the ERC form. They should also ask for a value based on a specific marketing period. That is a different appraisal mind set.
I've yet to become comfortable with listings in the sales grid. I do it when I have no choice. Granted they are indicators of market conditions. I feel it is more appropriate to discuss listing trends in the narrative sections of the report.



Kevin

I don't agree- say you have three closed sales from 4 months ago- all model matched that sold for 300k- you have 20 model matches currently on the market for 250k- is your subject worth 300k- I doubt it.

 

[Esox]

I don't agree- say you have three closed sales from 4 months ago- all model matched that sold for 300k- you have 20 model matches currently on the market for 250k- is your subject worth 300k- I doubt it.

Of course it isn't worth $300,000. That's why you make time adjustments to reflect the declining market. My point is it is guess work to predict what those listings will sell for. What if they all sell for $210,000 or $190,000? If you have 20 properties listed for $250,000, and there has not been any sales in the last four months, what good does adjusting them in a grid do for you? With no recent sales, then how reliable is a sale to list price ratio adjustment if you're determining it from sales from four months ago? You're predicting the future which is forecasting. That listing info should be handled in a narrative. Discuss average and median original and current list prices, etc. Compare those numbers for the same from your historical data. Include that in your determination of what your negative time adjustment should be. That's what I do for my local bank clients that aren't requiring gridded listings.

IMHO, it's been obvious for some time that lenders want to lend money on what they think is going to happen to a property's value in the future, and not on the effective date of the appraisal. That's why in markets they have stamped as declining they are/were requiring that extra 5% from borrowers.

They should admit that's what they are doing. They want anticipated sales price and not market value. Unfortunately, they give no guidelines for this process. I'm certainly not saying that current listing trends aren't important, because they are very important in the appraisal process. I just don't think they belong in a sales comparison approach. FNMA should immediately produce a three listing grid attachment where listings can be separately listed and discussed. It should include original list price, current list price, total days on market, etc. I think the 1004 should have a separate section where you discuss each comparable listing and sale and the rational for the adjustments to each just like the ERC form. You'll never get a longer form because then the it will be obvious that the cost to produce is more than what anyone is willing to pay an appraiser to properly do his job. Instead they say, "just toss a couple listings into the sales grid", even though they don't belong there.

But WTF do I know, I'm just a guy that does close to 100 relos a year with a variance under 4%.

Kevin

 

[RSW]

Uhmmm, if there are very similar properties available for less than what was most recently sold, as of today, the subject is NOT worth more than those substitute current offers. To those that believe otherwise, I would like offer you a bridge in Brooklyn....

Dito Pam, Principal of substitution.