Reasonable Exposure Time

[Meandering]

Thanks for the clarification on Exposure vs. Marketing.

There are no value issues addressed. They seem satisfied with those. The reviewer is going down two different paths from what can tell. He is asking why my exposure time does not match the client imposed marketing time (and I am not mixing up the two there, this was a direct question from his email)

Where the underwriter/reviewer seems to be giving me guff is on my exposure time statement. The statement, not the value or dollar related issues.

I have reported the typical market exposure time for a home in as-is condition based on the market information, and there is wording in the REO addendum specifically addressing the client desire for a restricted marketing time.

Marion hit the nail on the head, but I think I will behave and leave out the Sorry, try again part!

Thanks again guys.

Greg,
If your marketing time and exposure time are different, then you are projecting your future marketing time in a market that is in flux. And that is okay, but you have to explain it. Here, winter sales take longer, exposure time is longer, but we're coming into the spring and summer selling seasons so marketing time would naturally be shorter, simply because there are more buyers when they don't have to drag themselves through the snow to look at house and potentially move.

Seasonality can be the sole difference between exposure and market times. contemplate that.

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[George Hatch]

IMO, you guys are barking up the wrong tree.

Market Value is based on what happens in the market when those buyers and sellers are all doing their thing. It's not dependent on client-imposed limitations on comparables selection, maximum rates of adjustments or any other external factor beyond what those market participants normally do.

When a client or user is asking for a value with a constrained exposure time or any other external limitation then that expression of value is no longer entirely consistent with the definition of Market Value that's stated on pg 4 in every URAR.

What do we call a value that's based on a client-constrained exposure time? Well, if the constraint is relatively minor then it might fall under a definition of "Disposition Value". If the constraint is severe the question being asked may represent a form of Liquidation Value. Both definitions have some similarities to the definition of MV except for the assumptions about the seller motivations.

Disposition value is defined in the Appraisal Institute’s The Dictionary of Real Estate Appraisal, 5th Edition as:

The most probable price that a specified interest in real property should bring under the following conditions:

1. Consummation of a sale within a future exposure time specified by the client.

2. The property is subjected to market conditions prevailing as of the date of valuation.

3. Both the buyer and seller are acting prudently and knowledgeably.

4. The seller is under compulsion to sell.

5. The buyer is typically motivated.

6. Both parties are acting in what they consider to be their best interests.

7. An adequate marketing effort will be made during the exposure time specified by the client.

8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.

9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. This definition can also be modified to provide for valuation with specified financing terms.

Liquidation value is defined in the Appraisal Institute’s The Dictionary of Real Estate Appraisal, 5th Edition as:

The most probable price that a specified interest in real property should bring under the following conditions:

1. Consummation of a sale within a short time period.

2. The property is subjected to market conditions prevailing as of the date of valuation.

3. Both the buyer and seller are acting prudently and knowledgeably.

4. The seller is under extreme compulsion to sell.

5. The buyer is typically motivated.

6. Both parties are acting in what they consider to be their best interests.

7. A normal marketing effort is not possible due to the brief exposure time.

8. Payment will be made in cash in U.S. dollars or in terms of financial arrangements comparable thereto.

9. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

This definition can also be modified to provide for valuation with specified financing terms.

Because of the way the quote feature works you'll need to expand those definitions to see the elements I have bolded that are different than as stated in the definition of MV on these forms.

 

[George Hatch]

Now don't get me wrong. When the client asks what the value is under a constrained exposure time that's by no means a bad question for them to ask or for you to answer in your appraisal. But if we're engaged in WYSIWYG then you would need to refrain from referring to a value that's based on different assumptions as being MV.

Inasmuch as the URAR and other GSE forms are hardwired for MV, and banking regs require these bankers to get MV appraisals, the inclusion of a different value based on a different definition of value would normally be supplemental to the opinion of MV as expressed on those forms. It would not be an undisclosed substitute based on the idea that the client knew what they were asking for so all the other intended users also "know".

What I routinely do for such requests from the lenders is to call a disposition value or liquidation value what it is, develop it separately from the MV value opinion that appears on the bottom line of the URAR, and report it accordingly as an additional value opinion. USPAP SR2-2a.v requires that you state the definition of value you're using in the report so you'll need to include whichever definition your additional value opinion is based, including the reference to whatever exposure time limitation this client has demanded.

The checkbox reviewers at these lenders may have to be educated about they're doing, but if you explain it as being in the lender's best interests to not get caught by their regulators in crossing these wires they'll come around. The key is to remind them that the definition of MV - which these lenders are *required* to get - lays out some very specific assumptions and neither the lender nor the appraiser have the discretion to monkey around or play games with those assumptions.

 

[hastalavista]

Maybe I missed it, but I didn't read any posts that said a client-imposed (restricted) exposure time can be used and the value is still Market Value?

 

[George Hatch]

Lastly, it is not entirely uncommon in the assignments I perform that include requests for Disposition Value or Liquidation Value for the number on the bottom line of the MV value opinion to be the same as the number for Disposition Value or even Liquidation Value.

If a market segment is hot and such properties normally sell in less than 10 days of exposure then an arbitrary limitation of 30 days exposure for a Liquidation Value doesn't conflict with what the market is already doing.

 

[Meandering]

Totally agree with you guys.

This is what happens with clients that don't know anything about appraisals or USPAP definitions, and Fannie Forms that say Market Value, where it should be a blank for the value type to be filled in by the appraiser.

So it's not the wrong tree, it's the same tree, and it's the same reason we are going to see some of the USPAP changes that are coming because GOD knows it'll take an act of Congress to change a Fannie Form.

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[George Hatch]

In many/most cases the lenders are required by regulation and/or internal policy to get MV in all their appraisals. The "other" values like insurable value and DV and LV and Rental Value are usually add-ons, not substitutes.

IMO and given how appraisals often do fall into the clutches of not-intended users, providing "both" values whenever possible is almost always better than choosing between them.

 

[Meandering]

That REO assignment, you should look at the form. It goes with a 1004 for market value, then, on the REO form again asks for market value as-is and as repaired with a reasonable market exposure time. It's a repeat of the 1004,
but
it also asks for market value as is and as repaired with a client imposed restricted market exposure time.

The client can not restrict the appraiser's opinion. Exposure and Market times are appraiser opinions based on the value opinion, time of year, studies, analysis, yada, yada.

There is no USPAP definition of a term for a: "client restricted" marketing time, or, exposure time
Market value is pre-printed on the form, there is no way to change the form to disposition or liquidation value.

The form is bad, in contrast to USPAP definitions,
The REO form is in contrast to Fannie's own definition of Market Value pre-printed on the URAR that goes with the form.

Clients don't care, they just know they need a set of numbers that are bigger than the other set of numbers.

Appraisers could narrate they are using the REO form as a SOW requirement of the client, but that the pre-printed language is overwritten by what the appraiser writes and defines as disposition or liquidation value. The appraiser could try to wiggle around some verbiage that marketing time is not really the appraiser's opinion based on value, but rather is the client's desire, which has the impact of driving the value lower if typical exposure and marketing times are longer than what the client wants. But we can't possibly state this little truth, because then we are developing opinions that favor the cause of a client (God forbid), so we'll all just pretend the definitions don't really apply to these types of assignments.

Some minor form changes, a new term or definition or two in USPAP would fix the issue, but then, somebody will be exposed for pushing for lower values, so let appraisers hang for it. We're the only ones responsible for the definitions found in USPAP.


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[George Hatch]

Appraisers have been forced to work around Fannie's limited understanding of appraising before. I think this could be argued as another example of that. The LAST thing I would do as an appraiser is to assume the responsibility for their stupidity.

Mind you, I have absolutely no qualms about them asking a question or with me answering that question - I just think it's dumb to mischaracterize either the nature of the question and/or the nature of the answer.

 

[residentialguy]

mike hasn't copy/pasted anything in a while. he needed a fix.

Now that's funny!