Please help me understand

[Carnivore]

Exposure time and value are related. Reduce exposure too much (for example, immediate liquidation value) or expand it too much, and you no longer estimating market value.

Steven,

I like what you said because it is so much better than Statement 6.

It reminds me of the fairy tale involving baby bear, mama bear and papa bear and porridge.

"STATEMENT ON APPRAISAL STANDARDS NO. 6 (SMT-6)

Exposure time may be defined as: 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 opinion based on an analysis of past events assuming a competitive and open market.

 

[Mike Boyd]

To determine MARKETING time, one needs a crystal ball. For EXPOSURE time all you have to do is analyze MLS data and create a median range or an average. My guess is that marketing time is critical when there is an over-supply of inventory. To be applicable, one would have make a determination of REASONABLE time to sell, then, if the marketing time is greater than that determination, reconcile a final conclusion of value for the subject to sell within that reasonable time. Hocus pokus. They will make underwriters out of us, yet.

 

[Farm Gal]

is exposure time relevant since its looking backward from a point in time value of today?

SURE!
That consideration may be VERY relevent whether you have data indicating a rapidly appreciating or declining market, which you reasonably assume to continue along the same rate of change
~OR ~
One in which historical sales show no significant change but there appears to be a developing imbalance in supply/demand on which you want to voice an OPINION.
~OR ~
A static and stable market in which you can reasonably assume no value/time change from historical sales!

In any case, an astute appraiser is going to give some consideration to past and present by prognosticating the future to get back to the present.... (kind of like a warped movie title?) ...taking DATA and developing an OPINION.

Consideration of (and IF there is a difference between) exposure time and marketing time is a vital part of the opinion development process.

I use the following visual provided to me by George Hatch many years ago - curled and browning at the edges it works for me visually. I added a second line as a visual cue to myself!

~~~~~~~~~~~~~~^^^^^~~~~~~~~~~~~~~~~~
Exposure <---- |House| ----->Marketing Time

.......................................................Wholey.................
Estimate of Fact...........................Fabricated - Opinion
based on analysis.........................based on best guess
of actual sales.............................of what is to come



Sorry about the dots, formatting won't stay without em!m2:

 

[PropertyEconomics]

SURE!
That consideration may be VERY relevent whether you have data indicating a rapidly appreciating or declining market, which you reasonably assume to continue along the same rate of change
~OR ~
One in which historical sales show no significant change but there appears to be a developing imbalance in supply/demand on which you want to voice an OPINION.
~OR ~
A static and stable market in which you can reasonably assume no value/time change from historical sales!

In any case, an astute appraiser is going to give some consideration to past and present by prognosticating the future to get back to the present.... (kind of like a warped movie title?) ...taking DATA and developing an OPINION.

Consideration of (and IF there is a difference between) exposure time and marketing time is a vital part of the opinion development process.

I use the following visual provided to me by George Hatch many years ago - curled and browning at the edges it works for me visually. I added a second line as a visual cue to myself!

~~~~~~~~~~~~~~^^^^^~~~~~~~~~~~~~~~~~
Exposure <---- |House| ----->Marketing Time

.......................................................Wholey.................
Estimate of Fact...........................Fabricated - Opinion
based on analysis.........................based on best guess
of actual sales.............................of what is to come



Sorry about the dots, formatting won't stay without em!m2:

LeeAnn .. I understand the relevance of the two and you have explained it very well. I just have wondered why some reports require exposure time ... that time necessary for sale had the property been offered in the open market. I would think marketing time is more important based upon current and historical trends. I understand their relevance to one another .. just not sure I understand estimating what would have happened if .. when the if didnt occur. Since it wasnt listed or offered for sale .. is the exposure time estimation based upon the hypothetical condition that HAD IT BEEN .. it would most probably have sold .... but didnt because it wasnt offered???

 

[Mztk1]

LeeAnn .. I understand the relevance of the two and you have explained it very well. I just have wondered why some reports require exposure time ... that time necessary for sale had the property been offered in the open market. I would think marketing time is more important based upon current and historical trends. I understand their relevance to one another .. just not sure I understand estimating what would have happened if .. when the if didnt occur. Since it wasnt listed or offered for sale .. is the exposure time estimation based upon the hypothetical condition that HAD IT BEEN .. it would most probably have sold .... but didnt because it wasnt offered???

In effect, our appraised value is a hypothetical. We are saying if the house were to have closed on this date (the effective date) it would have sold for this this amount (the appraised value). That appraised value has built into it a fact that to have sold the house on the date of the appraisal we would have had to have had it offered for sale. There is no escaping that. If it is too short of a time, our value would likely be different for either quick sale or a pocket buyer; if it is on too long, our value will be off depending on market conditions. So implied in our opinion of value is a correct amount of exposure time on the market the subject would have had to have in order to sell. We should disclose exposure time as best as possible...usually through listing the days on the market of our comparables.

 

[Mr Rex]

To sum up Jim. A typical appraisal is hypothetical, saying that this is the most likely price based on this defined exposure period. It may or may not have been marketed at all, or for the same amount of time as a reasonable exposure time (or more or less). Changing the marketing time will change the value, which thus might not be "Market value". Market value is based on a "reasonable" exposure time which we are supposed to establish in each assignment per SMT 6.

 

[ZZGAMAZZ]

Prop et al:

IMOHNO: I don't think the word "hypothetical" in determining market exposure time is identical to the use of the word in the "Condition" of the same name.

Although SMT-6 describes "an estimated length of time...prior to the hypothetical consummation..." the same consideration and deliberation pertain regardless of whether the sale did or didn't occur, the only difference being the intended use of the assignment.

I might get bombed for asking this question, but does anyone know definitively whether exposure time is given any credence in the residential mortgage loan process?

Recent threads reveal very little consensus concerning how to determine marketing time. From my personal perspective, albeit limited, a form report (because that is what I do) that provides fully developed market exposure time and marketing time requires a level of analysis way above-and-beyond client expectations as well as the activities of my peers.

From my position in the mud under the bridge at the bottom of the Ivory USPAP Tower I wonder: does it really matter?

 

[Mr Rex]

Its not so complicated. Your market value is based on a reasonable exposure time, established with your local market comparable data average DOM etc. Marketing time can be a client imposed time period, like ERC or REO etc, and can and does effect value, thus creating something that is not truly "market value" in the typically accepted version of the term.

 

[PropertyEconomics]

Its not so complicated. Your market value is based on a reasonable exposure time, established with your local market comparable data average DOM etc. Marketing time can be a client imposed time period, like ERC or REO etc, and can and does effect value, thus creating something that is not truly "market value" in the typically accepted version of the term.

Rex .... thank you .... this post has been very enlightening. Now back to that ammo and those beans ....

Thanks again.

 

[Mztk1]

I might get bombed for asking this question, but does anyone know definitively whether exposure time is given any credence in the residential mortgage loan process?

In a sense yes, in a sense no.

Exposure time is the time leading up to the hypothetical sale of the subject property, for which the hypothetical sale price was your opinion of value as of the hypothetical closing date, i.e., effective date.

I use "hypothetical" lightly too. You can interchange it with "make-believe" and it reads just as accurately.

You base the length of exposure time on your market data. That market data comes from your comps. But since your comps did not hypothetically sell but really sold, they did not have "exposure time" leading to their date of sale, but true, honest to goodness marketing time.

Think of "exposure" as in undeveloped film. There is something surreal, shadowy, even contrived about it.

Now that same data we base our "exposure time" on, we are also using as a basis for our "marketing time" in the neighborhood market section of the form. In this sense, what our exposure time is, indirectly albeit, has an influence on lending, LTV rates, etc.

But in another sense, the reason many of us do not know or understand "exposure time" is because it isn't needed on a day to day basis, pragmaticaly, while doing mortgage loan appraisals. We can forget the term exists, forget what it means, and our results and analysis would not change a bit.

But boy, when that trainee asks about the difference between market and exposure time and we talk till his eyes glaze over, our knowledge is priceless.