REO sales and "Market Value"

[George Hatch]

BTw, if your argument is that liquidation value can be equal to market value then it's only logical to recognize the reverse - market value can be equal to liquidation value. In either case it's the actions of both sides of the transactions that we're looking at, not just the one side.

 

[George Hatch]

Actually, if you want to know where it says such things, look at the various definitions of value. If you want to know where it says you may need to consider different definitions of value see ...

[url]http://www.appraisalfoundation.org/[/URL] 03-Valuation Advisory 3 - Residential Appraising in a Declining Market Final 050712.pdf
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... and look at lines 34-46, 54-56, and especially 69-77 as well as 106-108, 111-116 & 117-118.
Voluntary compliance (not mandatory) but it is an Advisory by an authoritative source.

Big deal - there's more than one definition of value that can be used. Old news and not in argument here.

 

[CANative]

All else being equal an REO will sell for less due to the stigma. The market perceives a risk (and recognizes an opportunity). This means a transactional adjustment would be made. Properly done, it shouldn't matter what sales you use... you should come to the same value.

 

[DMZwerg]

BTw, if your argument is that liquidation value can be equal to market value then it's only logical to recognize the reverse - market value can be equal to liquidation value. In either case it's the actions of both sides of the transactions that we're looking at, not just the one side.

Who said that?

I have worked auctions where bidders run well above item value, including when said exact same items can be found on sale new in the dealer's area for significantly less. I say that market value is not the same as disposition value and that neither are liquidation value. I have stated that they progress in that order as they move from meeting the qualifications of market value (seller typically motivated and with adequate marketing efforts and time), to disposition value (seller under compulsion to sell, with adequate marketing effort in limited time), and finally to liquidation value (seller under extreme compulsion, with limited marketing effort and time). Because they can move one way does not mean they can move the other.

 

[Randolph Kinney]

All else being equal an REO will sell for less due to the stigma. The market perceives a risk (and recognizes an opportunity). This means a transactional adjustment would be made. Properly done, it shouldn't matter what sales you use... you should come to the same value.

To demonstrate that point of assertion, find an REO sale that was resold with the only difference is who owned the property. That's called a flip and there are such things in the market.

Lenders don't want to lend on such resales, especially if they are less than 6 months from the last sale and nothing was done to the property, other than a change of who owns it.

 

[CANative]

To demonstrate that point of assertion, find an REO sale that was resold with the only difference is who owned the property.

That's what I'm saying. Randy Bell has a nice chart of how stigma works (drop in value then recovery.)

 

[DMZwerg]

Big deal - there's more than one definition of value that can be used. Old news and not in argument here.

Actually, yes it is in argument here. You are for altering the Def of Market Value to fit the local market (just because all or nearly all properties CURRENTLY on the market or recently sold are distressed) whereas Terrel, ResGuy and I keep saying that OREOs do not meet the Definition of Market Value (and I specifically refer to the FIRREA definition as that is the easiest for most appraisers to understand). Heck, I am not even certain JGrant knows that different definitions of value even exist.

So, what is the time interval such that the Definition of Market Value needs to be "more broadly interpreted" given only distressed sales on the market?
5 years?
1 year?

Well, if it needs to be more broadly interpreted if the data is even 5 years of only distressed sales then I can mathematically prove that is the same as saying only one month. Heck, I can likely mathematically prove that it is the same as 1 day if not 1 hour or 1 minute. Therein lies the problem with saying "distressed sales ARE the market".

 

[Randolph Kinney]

That's what I'm saying. Randy Bell has a nice chart of how stigma works (drop in value then recovery.)

Diminishing Diminution: A Trend in Environmental Stigma

http://www.realestatedamages.com/pdf/DiminishingDiminution.pdf

Is that the one you are talking about?

 

[DMZwerg]

To demonstrate that point of assertion, find an REO sale that was resold with the only difference is who owned the property. That's called a flip and there are such things in the market.

Yeah, that can be proof of a condition of sale adjustment between an REO and an non-REO

(hey look, I am agreeing with Mr. Kinney woohoo)

That's what I'm saying. Randy Bell has a nice chart of how stigma works (drop in value then recovery.)

I would be a bit loathe to call it as all being "stigma". Stigma may be part of it along with marketing time, willingness to hold, regulator action, and numerous other possible seller motivations that are typical of REOs.


Lack of flips does not prove there is no difference, stigma, or adjustment needed.

 

[CANative]

Diminishing Diminution: A Trend in Environmental Stigma

http://www.realestatedamages.com/pdf/DiminishingDiminution.pdf

Is that the one you are talking about?

Yes.

that OREOs do not meet the Definition of Market Value

What does that have to do with anything? We're not trying to find a comparable sales market value. We're analyzing it's sale price. This is where you're disconnect is.