REO sales and "Market Value"

[J Grant]

Banks are not allowed to be property owners under banking regulations and federal law (except for certain exclusions) so how can a bank be a "typical" seller let alone a "typically motivated" one? :laugh:

What in the world are you talking about? The bank has a first lien on a property when the homeowner has a mortgage with them.
When a bank takes back the property, they legally own it. The fact is, the market decides who a "typical" seller is...all our information is supposed to be market derived. We don't get to decide who a typical seller is, (or who the typical sellers are). We are supposed to correctly read the market, and the actions of market participants.

 

[George Hatch]

You know, M(R) already tried to go down that rabbit hole of ownership being an element of HBU analysis. I was aghast and I stopped him up short right there before he could even get going. Frankly, I was more disappointed in him at the time than I am in you right now because as a CG he was supposed to know a lot better than that. I don't have the same expectations for you guys because most of you have little or no experience with that mode of analysis.


But don't kid yourself - buyers don't care if their seller is a flipper or an investor and neither should you.

 

[George Hatch]

Um, you do realize that said "if" is located in a section where they discuss THREE DIFFERENT definitions of market value, right?

LOL................Keep going. Before long you'll accidentally acknowledge that REOs can fit in with the concept of market value.

BTW, any word on what the buyers and sellers in a 2004-2008 subdivision in this region are going to base their decisions on? Or do you intend to leave that question hanging out there indefinitely?

 

[DMZwerg]

[url]http://en.wikipedia.org/wiki/Liquidation_value[/URL]

Just for you, DMZ!

So, do a search for the word "auction" in that page you linked to.

Didn't find one, huh?

So how about looking at was WAS actually written: "the likely price of an asset when it is allowed insufficient time to sell on the open market, thereby reducing its exposure to potential buyers.
<snip>
certain illiquid assets, like real estate, often require a period of several months in order to obtain their fair market value in a sale, and will generally sell for a significantly lower price if a sale is forced to occur in a shorter time period."


Hmm, no mention it can not be listed on MLS, in fact "open market" is actually stated in the text above the actual definition. It goes on to say "often require a period of several months" ... hmm again.

Third base!



Oh, by the way, for any who would try to point out marketing time realize that I have been saying OREOs do not meet the FIRREA DoMV, not that it doesn't meet some other definition of value, such as Disposition Value. Liquidation Value is only applicable if the property is under some extreme motivation, like "if enough of these don't sell The Regulators will liquidate our bank, as we need sufficient LIQUID assets to balance all these ILLIQUID assets (foreclosures)", something that happened to a couple of banks locally (aka, they were liquidated and assets sold to other bank(s)).

Like a dog with a bone all this jumping on my mention of Liquidation Value as if trying to imply I stated all REOs are under Liquidation Value or such nonsense.

 

[George Hatch]

Again, I can show you entire market segments were there is zero difference in actual exposure time between the two datasets. Not a coincidence and not a lie.

 

[J Grant]

Appraising a property according to owns it is absurd. Do you appraise a property differently if an old person owns it? A young married couple? A foreign person? What difference does it make who owns it?

There is one element of ownership that might impact prices, and that is, if buyers find out, or suspect, vulnerability of a certain owner that they can take advantage of. Such as, an owner facing foreclosure, for example. Likewise, with REO properties, a buyer might try to make a lower offer than with a private owner. How that is handled is up to the banks. Many have a policy of not taking the first offer, and waiting 20-30 days and then comparing offers (unless a full price, all cash offer comes in)

But, just as buyers may try to find vulnerability in sellers, sellers try to exploit vulnerability in buyers. A first time buyer, a cash rich buyer, a buyer in a rush because they have to move, a not well informed buyer, etc.

The market is always an interaction of buyers and sellers . We may not approve of who they are or what they are doing, but we have to measure their actions as it impacts prices.

 

[DMZwerg]

LOL................Keep going. Before long you'll accidentally acknowledge that REOs can fit in with the concept of market value.

The only point my view has changed in 3 years is to change "analysis, comment OR adjustment" to "analysis, comment AND adjustment". That and I now have better ways to describe it and ammo to use against the apparently deaf. So why do you think my view has changed or do you still mistakenly believe I keep saying "Das ist verbotten!" like you seemed to keep hearing 3 years ago?

BTW, any word on what the buyers and sellers in a 2004-2008 subdivision in this region are going to base their decisions on? Or do you intend to leave that question hanging out there indefinitely?

What buyers and sellers base it on goes to motivation, just like which GROUP of buyers and sellers you talk about also goes to motivation, and what is typical has been and will be (one nanosecond does not change the meaning of "typical").

Fair Market Value (FIRREA definition).
Use of anything else would be misleading when completing a FNMA form (per USPAP statement that client can indicate definition of value to be used).

 

[Terrel L. Shields]

the REOs must be analyzed, commented on *AND* appropriately adjusted.

So, how and where did they say otherwise?
From Guidenote 11: "More likely, comps that sold under different conditions than stated in the value definition must be used and then adjusted as necessary and appropriate.
Appraisers must be careful to identify when sales are occurring at market value, disposition value or liquidation value. Even when the only sales occurring are distressed sales, they do not represent market value if they do not meet the conditions of the definition of market value."

exactlyl...

Yes, Geo. I was appraising prior to 2009. I was harping about overvalued property being on an unsustainable path in 2005. my quote

http://realtytimes.com/rtpages/20050202_appraisalcrisis.htm
The financial day of reckoning will come.

The years 2005 - 08 were my slowest since 1994. That was when the few secondary market lenders I had stopped using me. Too many complaints because I was deducting for incentives (I drew the line at 90 mortgage payments, cruise ships or in one case, a choice of a bass boat or Hummer in the garage). I refused to play ball with nonsense like that and fired the entire secondary market lenders...not that they were rarely using me anyway.

There are Realtors yet (perhaps appraisers as well) today who think that once all the inventory is goobled up (28% NOW going to investors...what happens when those investors find out they are not making 8% return but only 4%??? can you say "back on the market again..") that we will zoom zoom up again...not likely in my lifetime is my response.

No bank will ever be a "typical" buyer or seller. A bank is shedding inventory according to the best management practices that they have or need for the cash flow. They operate under rules no homebuyer would give a second thought. Banks have to sell property. They cannot occupy it, so they usually cannot protect it. Thus, they have an asset that is at risk. Only if lucky enough to be in a "safe" area will that asset survive for long without vandalism. We just looked at a log house near a lake but 10 miles from a town. No other house visible. People have partied here. They want shed of it, and I promise, it will sell for a fraction what it will appraise for. And this ain't it's first rodeo. It went back to HUD in 2006, who sold it in early 2007 for $125,000. The buyer flipped it for $279,000. The buyer surrendered it a few months ago then filed bankruptcy so the bank has been unable to even set foot on the place until now. They want shed of it quick...Try as we might, we haven't found a similar house that won't bring $240,000. So why did HUD sell it for $125,000 back then? same problem. It is vunerable to vandalism that could literally cost it more than they could get out of it.

 

[DMZwerg]

Again, I can show you entire market segments were there is zero difference in actual exposure time between the two datasets. Not a coincidence and not a lie.

Um, I mentioned THREE datasets: REO, non-distressed, and total.

So which TWO are you saying shows not one jot of difference between median, average and maximum?

Besides, as you have now confirmed there exist in your markets different market segments you have already rendered my question moot as you have, by stating "segments" admitted there are different pools of "typical" buyers and different pools of "typical" sellers (such as, for buyers, rehabbers, flippers, landlords/renters, and so forth). Yeah, I can show that landlords don't give a rot either and that flippers actually seem to prefer OREOs.

 

[J Grant]

Terrel, I understand what you are saying about banks not having the typical concerns of private owners, but in the appraisals, we use the word typical in a different way...to reflect the typical actions of market participants.

Thus, even if a bank's time frame or concern about protecting vacant property is different from a family living in a home, the actions of the banks become typical for a market area, when enough banks do end up owning and selling the properties.

The actions of the banks, in a way, do reflect "Typical" sellers, real inidividual home owners, because each and every one of those homeowners defaulted on a mortgage before the bank took the home back, so the actions of the bank as a seller is an extenstion, of the prior typical actions of individuals (the sadly, typical actions of defaulting).

It's hard to deal with because historically, there has never been such massive numbers of defaults, and thus, the resultant REO and short sales we have seen the past few years. They are drying up as inventory in some sections of areas I appraise, but still present and ongoing in other areas.