REO Comp Question

[residentialguy]

edited, see next post

 

[residentialguy]

You can't pretend that the subject is not REO (and as such does not meet the pre-printed definition of market value) as the seller is not typically motivated.

Market Value is a presumed sale and the subject sale has nothing to do with it, (unless that stigma will stay with the property, like a home where a mass murder took place, thus would affect the presumed sale since it is attached to that property). But, as you can see by OP's scenario, REO stigma is a stigma only occurs when it is a REO sale. Wham Bam, thank you Mam. It's like a seller paid concession...you don't adjust the comps for the subject's selling situation. It has nothing to do with them. You adjust the comps for any situation that occurred in that comp sale that affected the price.

 

[Mr Rex]

Mumbly speak doesn't magically change reality.

 

[Mr Rex]

Often times the appraiser has to "school" the client on what they are asking for. All things equal when a client asks for "Market Value" appraisal with one side (seller) not "typically motivated" as required by the pre printed definition, they are asking for a misleading report. It is the appraisers responsibility to communicate with the client to determine the intended use. I have edumacated more than a dozen AMCs/Lenders that they may ask for market value but if they want to know what the property will actually sell for their request can not be met if they demand non REO comps when they are selling REO properties. I have actually seen some of my suggested verbiage regarding "Disposition Value" or "Liquidation Value" in their updated engagement letters. As Santora famously said (modified) they don't want a market value appraisal, they want to know what it will sell for. Sometimes you have to nut up and communicate with the client on a basic level. I think it might be a USPAP requirement.

 

[Mr Rex]

FWIW, there are times where the lender wants "market value" when the property will never sell under the pre printed definition of market value. If that is the case, fine, but rather than be complicit in reporting a misleading value, I choose to communicate with the client and reserve their response in my workfile as evidence. There are occasions for accounting perhaps that they require "Market value" when the probability of sale at market value is near zero. But you damn well better disclose this and prolly ought to provide a "real" opinion of value. MHO.

 

[J Grant]

Liquidation value means a limited time on market and limited marketing effort. If client wants a market value opinion that is what they want. When subject is an REO owned, the client often asks for 2 value opinions ( Market value, bottom of SCA on URAR and then on addendum as is value within a specified marketing time/exposure, such as below 90 days.) There may also be an "as repaired " value opinion as well.

 

[Mr Rex]

No shirt shelock. But if REOs sell well below "Market value" sales because they are by definition not market value sales because the seller does not meet the pre printed definition of a typically motivated seller then not using REO comps when they are a factor in the market is patently misleading.

 

[J Grant]

No shirt shelock. But if REOs sell well below "Market value" sales because they are by definition not market value sales because the seller does not meet the pre printed definition of a typically motivated seller then not using REO comps when they are a factor in the market is patently misleading.

I never said not to us REO comps ! Use them if they are most comparable properties to subject and buyer for subject would consider them. If subject is in fair condition or otherwise similar to REO sales, use the REO sales then ( assuming they are exposed to open market. Note I do not advocate adjusting REO sales "up" to some predetermined direction of MV, ( unless market indicates it). And Some REO owned property, if in good condition or location, would not sell for less and may not have as best substituted REO owned sales.

The reason appraisers assume REO's sell "well below market value", is they assume market value is higher than these sales command. If most or all of the sales sell higher of similar properties and the only reason a house sells lower is because it is REO owned, eitehr adjust it up or dont' use it. But if your most similar sales comps to subject turn out to be REO owned and they are all selling "low", could be your subject market value opinion might be "low"..if that is what market will pay for it.

Market value opinion definition is most probable price, and most probable can be low, high or middle $

 

[The Bob]

It all comes down to defining the "market". It's funny we don't ever discuss the definition of "market". I've looked in all my appraisal texts and there is no definition of "market". So I came up with my own:

MARKET: Where two or more people with complementary interests (you want to buy/sell, I want to sell/buy) come together to transact business; each acting in what they perceive to be their own best interest".

in some area's REO's are a distinct market. People will argue they are distressed or the seller isn't typically motivated, but those differences are part of what makes them a niche market.
Take motivation. A bank has more considerations than just price. They have carrying costs, insurance, risk of loss due to vandalism, fire, etc... They don't like owning RE. They want to make loans, not have bad debts sit on the books. It would be hard to argue they don't think they are acting in their own best interest simply because REO's sell "below market" whatever the hell that means. Again, in some areas they are the "market".

 

[hastalavista]

An oldie but a goodie:

https://www.appraisalfoundation.org...aising_in_a_Declining_Market_Final_050712.pdf



H&BU; basic and fundamental.