REO Comp Question

[J Grant]

Market value for a poor condition needing repair house might be a low value. That is why MV is defined as "the most probable price" The most probable price for a poor condition house might be a low price. That does not mean it is "below" market value. That means, the market is saying the price it will pay for that property is a low price.

Unless client specifies another type of value , if assignment is for market value purposes, then that is the value sought, OP can confirm it of course.

 

[residentialguy]

It's not a matter of whether the comp was bank owned

***couBSgh***

 

[Terrel L. Shields]

It's not a matter of whether the comp was bank owned, it is a matter was it exposed to MLS/open market.

Banks are not "typically motivated"
http://bregmanproperties.com/difference-between-short-sale-bank-owned/

Banks are not in the business of owning real estate. Once a property is foreclosed upon the bank is very motivated to sell that property quickly. In our local area, banks will typically list their properties owned at an asking price below the current market value to stimulate a lot of interest and facilitate a fast sale.​

 

[J Grant]

What does TYPICAL mean? Whatever is prevalent, what most buyers or sellers are doing- if the competition for subject turns out to be comprised of some or all REO owned, then their motivations are typical for that market segment. Gee I don't recall "typical" being defined as only private owners, or families , or whatever some stereo type is. Typical of what is prevalent in that market segment .

If in your market area, banks are selling the properties faster or for cash offers, then analyze that impact on price. Do what the market indicates, not a generic or pre determined stereotype of what you think the market should be doing.

 

[Terrel L. Shields]

Typically refers to buyers and sellers not to finance or market property.

 

[residentialguy]

Oh Lord, here comes the "Zombies are the new healthy in the Zombie Apocalypse". JG's stuck in 2009 time warp. Wait till we hit bottom again and stay there before you pull out your living breathing translation JG. Typical is a bar standard...and until it changes as a way of life, "typical" stays at that bar of not being under excessive stimulus to sell. And when the two meet, you still use the typical home owner that willingly purchased that home to live in, not forced into acquiring it because a deal fell flat.

 

[J Grant]

Oh Lord, Zombies are the new healthy in the Zombie Apocalypse. JG's stuck in 2009 time warp. Wait till we hit bottom again and stay there before you pull out your living breathing translation JG. Typical is a bar standard...and until it changes as a way of life, "typical" stays at that bar of not being under excessive stimulus to sell. And when the two meet, you still use the typical home owner that willingly purchased that home to live in, not forced into acquiring it because a deal fell flat.

Typically motivated is the buyer/seller, its PRICE not affected by undue stimulus- says nothing about a buyer or seller affected by undue stimulus . It's the affect on price rather than the situation of a buyer/seller. A seller facing divorce under pressure to sell might get a high or low price depending on the market, not just their personal situation impacts the price.

People lose jobs, get divorced, get sick,need to relocate, face BK,or their home is under contract and they have to act fast. There are people with all the time in the world with plenty of money and under no pressure. But they are mixed in and competing to buy or sell with the other people's varying motivations in the market.

Interesting an appraiser won't use an REO sale as comp because of "undue stimulus", yet not consider the undue stimulus affect on price of house that sold with 8 competing bids 10% over list price. You have a prejudice against using REO sales because doing so might result in a lower opinion of value. Appraisers are not supposed to have a predetermined agenda about which direction they want the value to go .

Of course there are times not to use an REO sale as a comp.

Whether to use it , as with any other possible comp, is would the typically motivated BUYER consider an REO property as a substitute for subject. It's about what the buyers are actually doing not us editing the market to what they think they should be doing , or an Ozzie and Harriet concept of only certain people are typically motivated. In certain markets or for certain proprietress, a bargain hunter investor buyer is the typically motivated buyer, for others it is a mid budget minded family buyer, is typically motivated, for others, a high income person looking for a trophy property. The question is, who is the likely buyer for your subject ?

The AI, and Fannie released articles explaining that REO sales can be used as comps with suggested guidance about the use- the guidance is apply the same kind of analysis an appraiser would use for any comp. Do terms of sale or a cash sale have an impact on price needing adjustment is answered on a case by case basis.

If the MV definition wanted to exclude banks as sellers or investors as buyers it would do so. It doesn't. Typical are those participants in a market for subject property. If an REO is an outlier or sells at an extreme low price, of course dont; use it, but that is the same analysis you'd apply to any outlier sale.

 

[residentialguy]

People lose jobs, get divorced, get sick,need to relocate, face BK,or their home is under contract and they have to act fast. There are people with all the time in the world with plenty of money and under no pressure. But they are mixed in and competing to buy or sell with the other people's varying motivations in the market.

If that happens and it doesn't affect the price compared to the price where that is not happening, then no problem...no adjustment necessary. If it does affect the price, then you are to adjust it so it reflects a sale that doesn't have anything affecting the price.

Whether to use it , as with any other possible comp, is would the typically motivated BUYER consider an REO property as a substitute for subject.

Of course they might buy it... if the price is low enough. Now let's talk about the seller motivations. Banks got stuck with a house where they can't use it and are not even allowed to sell for a profit. Would you buy a house that is over market value and would just suck money from you every day til you sell it? You'd want to dump that SOB right away. Talk about undue stimulus!!!

The AI, and Fannie released articles explaining that REO sales can be used as comps with suggested guidance about the use-

Yes, and that was hardly a ringing endorsement to use them. They say that you can use them if you have to, just make sure you factor in stigma and condition variances - don't assume they're equal, etc. Far cry from you saying "that's the new typical"

If the MV definition wanted to exclude banks as sellers or investors as buyers it would do so.

it does require use to verify the conditions of sale find out those motivations. The problem with bank owned, you can't. No one knows.

So, use that non verifiable, as-is, stigmatized, limited bundle of rights REO sale as a comp if you want to. Just make sure you adjust it to match the sale prices of those that don't have that influence. Pretty stupid to use it when the end result of using it is the same...then again, common sense may no be so common in your parts. Humidity can affect your brain.

 

[J Grant]

that' s ridiculous to say you can't verify the bank's motivations- big amazing surprise- their motivation is to sell the property. wow, that was hard. Very similar to how any other property on the market is because the owner inteds to sell. Most verification is with a RE agent, not an owner, their secret private reason may never be known. In addition, an individual owner who is going broke or sick might have far more need to sell than a bank.

The bank is not allowed to profit, but they do want to recover the mortgage amount on sale if possible. Many banks now are sensitive to neighborhood needs and try to sell to owner occupants when they can- I see on many REO listings on MLS , no investor offers considered till after listed for 3 weeks verbiage. If an investor ends up buying it, then that is the market for that type of property/condition. It either competes with the subject, or it does not. BS REO is a limited bundle of rights- it is same fee simple as any other property , and if it is not, then don't use it as a comp.

 

[J Grant]

if you want to. Just make sure you adjust it to match the sale prices of those that don't have that influence. Pretty stupid to use it when the end result of using it is the same..Then again, common sense may no be so common in your parts.

Nothing to do with common sense and everything to do with your agenda to appraise to a higher value, or what you think the market "Should" be paying, rather than what the market is paying. Whether to adjust an REO price "up " or not should be determined by the market, not a predetermined rote rule to do so, which results in as you say the same price (higher) Whether to use REO sales at all, and whether to adjust for them if used is part of the analysis of specific market and properties and transactions.