marketing time versus exposure time

[JoTetherow]

hi all.

i have been boning up on USPAP in my spare time. or trying to at least.

i understand marketing time but the term exposure time is a little vague. is it marketing time + the time between contract and closing? is it a general thing like marketing time or is is tied only to the subject?

i have made comments on an appraisal when the subject takes more than the typical marketing time due to listing sale price too high, unusual property for the neighbrohood, and when a property sells low and in shorter than typical time due to non arms length or an inexperienced realtor or the owner wanting a quick sale

how do you all incorporate exposure time in your appraisals?

jo

 

[Carnivore]

The Dictionary of Real Estate Appraisal, 4th edtion

exposure time
1. The time a property remains on the market.

2. The estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal; a retrospective estimate based on an analysis of past events assuming a competitive and open market. Exposure time is always presumed to occur prior to the effective date of the appraisal. The overall concept of reasonable exposure encompasses not only adequate, sufficient and reasonable time but also adequate, sufficient and reasonable effort. Exposure time is different for various types of real estate and value ranges and under various market conditions. (Appraisal Standards Board of The Appraisal Foundation, Statement on Appraisal Standards No. 6, "Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions")
Market value estimates imply that an adequate marketing effort and reasonable time for exposure occurred prior to the effective date of the appraisal. In the case of disposition value, the time frame allowed for marketing the property rights is somewhat limited, but the marketing effort is orderly and adequate. With liquidation value, the time frame for marketing the property rights is so severely limited that an adequate marketing program cannot be implemented. (The Report of the Appraisal Institute Special Task Force on Value Definitions qualifies exposure time in terms of the three above-mentioned values.) See also marketing time.

-----------------------

marketing time
1. The time it takes an interest in real property to sell on the market sub-sequent to the date of an appraisal.

2. Reasonable marketing time is an estimate of the amount of time it might take to sell an interest in real property at its estimated market value during the period immediately after the effective date of the appraisal; the anticipated time required to expose the property to a pool of prospective purchasers and to allow appropriate time for negotiation, the exercise of due diligence, and the consummation of a sale at a price supportable by concurrent market conditions. Marketing time differs from exposure time, which is always presumed to precede the effective date of the appraisal. (Advisory Opinion 7 of the Appraisal Standards Board of The Appraisal Foundation and Statement on Appraisal Standards No. 6, "Reasonable Exposure Time in Real Property and Personal Property Market Value Opinions" address the determination of reasonable exposure and marketing time.) See also exposure time.

 

[George Hatch]

In the below glyph:

E = Exposure time
D = Date of Appraisal
M = Marketing Time;


<--E--- D ---M-->


In other words, relative to the effective date of the appraisal, Exposure Time is a look backwards in time (how would it have taken to get this value in this market?); whereas Marketing Time is a projection into the future (If I put in on the market today, how long will it take to sell at this price?).

Obviously, we consider it very possible for an appraiser to develop a supportable opinion of Exposure Time because that involves looking back in time and at data we already have. Reasonable people may disagree how appropriate it is to make projections of Marketing Time in an appraisal because that involves looking into the future.

An estimate of Exposure Time is an integral part of the definition of Market Value, and is required in SR1-2.c. Marketing time is not part of the definition of Market Value and is not required in USPAP, except to the extent that it may be a part of your scope of work, especially if you're doing something to Fannie specs. Fannie generally doesn't seem to make any distinctions between the two, and indeed you could probably argue that during most periods of time and for most residential properties, marketing time and exposure time would often be similar, if not the same. Of course, that would change when economic cycles swing around and reverse course, as they sometimes do.

As usual, Fannie's form doesn't specifically address Exposure Time so if you wanted to comply with the requirements in SR2-2.v ("...any comments needed to clearly indicate to the intended users how the definition is being applied") then you would probably at least stick a 1-liner in your Reconciliation of Value.

 

[xm72mhd]

how do you all incorporate exposure time in your appraisals?
jo

See Statement 6.

Exposure time precedes the date of value. Marketing time follows it. They may or may not be the same.

If you are appraising for market value it is imperative that you establish and report exposure time. It subsumes, as is stated in the definition of market value, normal marketing efforts at a price that is reflective of the market value.

Most lender clients want to know marketing time for the subject property. Beware that they may wish to market upon terms and conditions that are different from those included in exposure time. And they may not know what the terms are. Another thing to stick in your SOW after finding out what they want, if they can articulate it.

Many assignments come with a predetermined limit on marketing time. The most common is 120 days. Depending on your location and the segment of the market you are appraising, 120 days may or may not support market value.

 

[Tawfik Ahdab]

Marketing time is the period between the original listing date and the date becomes pending. When a sale becomes pending, it is no longer available as an offering since the property is tied up in a contract. Some MLS systems however report days on market as the period elapsed between listing date and closing date.

This is different from exposure time in market, which in USPAP, which is always presumed to precede the effective date of the report.

Keep in mind the definition of market value most of us use:

“The most probable price which a property should bring in a competitive and open market under all conditions requisite for a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer […]

What this means is that as of the effective date of your report (say today), the subject property would have closed at the most probable sale price of X (insert your value opinion). The next question to answer is “how long a period would have elapsed from listing date if the sale closed today? The answer to that question constitutes the exposure time in market. The answer is best derived from an analysis of the comparable sales you use in the appraisal.

Some people think that because the reference of reporting exposure time in market is no longer explicit in USPAP, that they no longer need to report it. However, George Hatch has made a powerful argument in other threads that it should still be reported.

A marketing estimate is forward-looking (into the future), while an exposure time in market estimate is backward-looking (into the past).

USPAP does not require an appraiser to develop a marketing time opinion, but requires an exposure time opinion, even if the appraiser chooses not to report it.


Never mind. Andrew, George, and Edd beat me to it.

As George stated, a good place to put it is in your reconciliation comments.

Here's an exmaple of my typical verbiage (applied in this case to proposed construction):

"Based on the comparables presented, which constitute the most pertinent market evidence of the subject's market worth, a final value conclusion of $575,000 is bracketed and reasonably supported, and estimates an exposure time in market for the subject of 120 days after completion. The estimated exposure time in market is derived from an analysis of the comparables utilized in this appraisal."

 

[JoTetherow]

still confused but getting there

ok, so exposure time is marketing time plus the time it takes to close from
the contract date?

this can vary tremendously depending on terms of sale. cash is usually quickest, some special program deals (like SONYMA deals in NYS) can take forever.

but, considering a typical sale with typical terms..(not a relo)

example. a property sold in a hot market in 1 day, over list price.

marketing time on report...under 3 months.

exposure time, 1-20 days marketing time (based on comps) plus the normal 4-6 weeks for closing.....exposure time 2-4 months?

forget quoting the USPAP book, already read that and all the definitions before i started this thread....i do understand it would be something different for a relo appraisal with time conditions.

jo

 

[Tawfik Ahdab]

Mr Herriman wrote:

"USPAP currently does not require that exposure time be reported. However, it does require the appraiser to analyze and be aware of exposure time."


Enter George Hatch.

 

[Mike Boyd]

99.9% of my appraisals, marketing and exposure time are equal and I so state that in my reconciliation. The other .10% I ignore.

 

[JoTetherow]

99.9% of my appraisals, marketing and exposure time are equal and I so state that in my reconciliation.

that seems to be the case in my neck of the woods as well i am happy to say.

j

 

[George Hatch]

Jo

You wouldn't want to confuse marketing time the way we define it with the way it shows up on an MLS listing. Their days on market count essentially fits the way we defined Exposure Time (period of time up to now), not Marketing Time (period of time starting now).


FWIW, Fannie's old 439 form included a comment that, unless otherwise noted, the estimated exposure time for the subject is consistent with the marketing time noted for the entire neighborhood in the Neighborhood section of the form. If you're appraising a typical home for the neighborhood and market conditions are not in flux that probably is true 99% of the time.


But not always. Right now in my area, exposure time could be shorter than marketing time because of the glut of listings and the declining volume of sales. And therein is exactly the type of situation Fannie wants to know about when they ask for marketing time.

Just 'cause Fannie's current form doesn't deal with it doesn't mean we should revert to autopilot on the subject. If Market Value is expressed within the context of the reasonable exposure time necessary to get that value under the current conditions, then we probably should give a few seconds to developing that opinion in our process. And we probably should communicate that opinion so that the reader can better understand where we're coming from on it.