Proper sales for manufactured homes

[Mike Garrett RAA]

Just checked with the county and they same we have more than 4,000 in this county alone??? HMMMMMMMMM.

 

[Mike Garrett RAA]

Correction "they say". Can't type any more.

 

[Jo Ann Meyer Stratton]

Those figures were for the placment of manufactured homes only during the year 2001. Previous years it was much larger each year.

 

[Karl]

I wonder if part of this problem is education or upbringing or something My question is when U can buy a 3 bedroom 2 bath 2 car attached garage Block fenced rear yard (Same size lot) for 70,000 GLA being about the same 14000 SF +/-. Y ? would u buy a Manufactured for more that will Depriciate 21,000 the first year U have it?

 

[Tim Hicks (Texas)]

Karl, Where do you get the idea that a manufactured home will depreciate $21,000 in the first year? That only happens if you pay more than the property is actually worth to begin with. That is the "key" to land/home packages, they are purposely priced way above market to uninformed buyers and supported by uninformed and uncaring appraisers. I see virtually no depreciation when the buyer buys their own land and home on their own terms.

 

[Mike Garrett RAA]

Yeah, please tell me where you get your depreciation information???

 

[Jo Ann Meyer Stratton]

I agree with Tim. It all depends on the original purchase situation. Buyer A goes into Dealer A, decides to buy a brand new 2002 Clayton Dream, 28 x 60. Buyer A has some money, arranged his own financing before shopping, used their own money to buy the land, prepare the site for installation, drills a well, has a septic tank installed, etc, etc. He pays $50,000 for the unit. Paid $20,000 for the land and paid out another $10,000 for the well, septic, site clearance, installation, foundation system. So Buyer A spends a total of $80,000. Next Buyer B walks into Dealer A, doesn't have any or very little money, has not done any preparation by talking to lenders or looking for a lot or anything else. But Dealer A is now his best friend who can get them the lot (exact same size) next door to Buyer A, has some good friends that drill wells, install septic systems, some more good friends to prepare the site and do the installation. Dealer A sends all his business to Mortgage Company ABC who orders all their appraisals from Appraiser C. Oh, oh Buyer B owes a lot of money on credit cards--needs to get those paid off, and doesn't have a down payment. So the dealer gives Buyer B a smoking deal of the same model of home, same size, same finish and amenities for $70,000. And because he is such good friends with the well driller, septim system installer, contractor that prepare the lot and install the home, all those things will only cost $40,000. Buyer B has obligated themselfs to a $100,000 mortgage. Two years later Buyer A sells his total package on the open market after exposure of a few months for $80,000. Buyer B decides to sell at the same time, but he lists the property for the $110,000 he put into it (on paper). After one year of marketing it hasn't sold, tries to refinance, can't because an appraisal only indicates a value of $70,000 to $80,000, not enough to pay off the mortgage. Eventually Buyer B goes into foreclosure, so walks away from the house angry and destorys the place. Foreclosure company finally is able to dump the property for $50,000. Both properties were duplicates originally--so what was the depreciation in the market if both homes had been equally maintained and with similar marketing techniques?? If you look at Buyer B, you might be tempted to say over 50%, but when you look at Buyer A, the depreciation would have been minimal. The big problem nationwide is all those Buyer Bs--and manufactured homes are in trouble. No wonder Fannie Mae's new guidelines preach against "created sales". And they have a division now that has the responsiblity to locate those situations.

 

[Mike Garrett RAA]

Buyer B's sale is not a typical arms length transaction, it is a foreclosure sale. If I have other sales that are truely comparable, I would not use sale B.

 

[Jo Ann Meyer Stratton]

The point I was attempting to make was that Buyer B original sale was not a bonafide sale to begin with! But people are looking at Buyer B original purchase (which was bogus to begin with and then using it as a comparable), comparing it to what it resells for and saying that manufactured homes depreciated tremendously. But Buyer Bs original purchase is NOT a comparable sale to begin with. The difference between Buyer Bs original purchase price and resale is NOT depreciation. Neither Buyer A's or Buyer B's original purchase should never be used to indicate market value because there are not arms length transaction, they are created sales, a sum total of everything added together.

2003 Standards Rule 1-e "An appraiser must analyze the effect on value, if any, of the assemblage of the various estates or component parts of a property and REFRAIN from the valuing the whole solely by adding together the individual values of the various estates or component parts".

If all the properties available for sale and have sold are foreclosures, then all the Buyer Bs resales is the market and the only comparables available, even if they are foreclosed properties. In in that case the depreciation would be the difference between Buyer B resale and Buyer A purchase price--not the difference between Buyer B's original purchase price and its resale price. And now Buyer A is hurt because of all the Buyer Bs out there. If resales of Buyer A type situations are predominant--then depreciation would be the difference between the purchase price of all the Buyer As and their resell value. So blanket statements do not apply.

 

[Tim Hicks (Texas)]

This is an issue that deeply disturbs me. I have reviewed some of these land/manufactured home appraisals with one land/home sale and two MLS sales with the $20,000 age adjustment for a 1-2 year old MH home sale. This is not true depreciation. This is "created depreciation". Most appraisers want to hide behind the "willing buyer and willing seller" garbage, but I consider it the uninformed buyer, greedy seller system. First, I usually prove that the land/home sale was not actually a sale, but a refi value (which disturbs me even more). Then, I obtain information that supports the land value is always at least $10,000 high and then I can usually prove that the land purchase was usually prior to the MH purchase. With thousands of MH sales each year in every county, sooner or later, we should have a re-sale that supports these values. We never do. Why, because the original value is so inflated that nobody would pay that price on the open market.

In TX, most lenders will only lend on "actual cost" of new home sales regardless of appraised value. Therefore, the developers realized that they had to work around this some way. So, they would sell the lot at an inflated price to the buyer by contract for deed or other means, sell the MH home separately at an inflated price, then they would take it to lenders six months later as a refi with additional costs added in. That is why we never have "actual arms length" sales on these properties. They pull an end around trying to beat the system and it worked and it is still working. I have reviewed appraisals less than a year old that have actual MLS sales of lots with septics, water meters and electric meters from the same addition that sold for $15-20,000, but their lot value is always $30-40,000, then they add additional dollars for site improvements.

I remember when I got a ticket for no front license plate when I was 18. I tried to explain to the officer that I did not know it was against the law. The officer firmly explained to me that "ignorance of the law is no excuse". This relates especially to our business. Ignorance by an appraiser is no excuse. Playing dumb is even worse.