REO sales and "Market Value"

[DMZwerg]

Appraising a property according to owns it is absurd. Do you appraise a property differently if an old person owns it?

If they are deceased? yes.
It is called an estate sale and those are not market value transactions (tend to have deferred maintenance, and often have at least one highly motivated seller amongst the heirs especially after 1+ years of probate where many of the heirs are no longer quite so local).

A foreign person? What difference does it make who owns it?

Those "foreigners" from Illinois paid premiums for properties in Kenosha during the boom far in excess of what was seen in Racine or Milwaukee. This did not change the appraisal but *DID* call into question the motivations of the buyer and whether they were typical. In fact last month I had to analyze, comment and "throw out" a potential comparable sale because the buyer came in from Mississippi IIRC and paid higher than market for a property. Really wished I could have used that one, but the FIRREA definition is what the definition is.

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)

Many don't.
I did an appraisal of an REO, only worth land value - demolition cost. Went for way under, as in "exactly what the BPO was" after being listed for under 30 days.

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.

Again, as in not Market Value as per the FIRREA def. Have to analyze, comment AND adjust to use said.

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.

"How it impacts" is not the same as "just using it without analysis, comment NOR adjustment". The former is what I have been trying to say, the latter is how you come across. Impact is rarely if ever a 1-to-1 correspondence.

 

[George Hatch]

I've been involved in this discussion in one form or another with people on this forum since 2002. You're not the first and I daresay you won't be the last. Between them the folks before you raised every single angle you've raised and then some. The progression of these debates always follows the same pattern, too - they start with the knee jerk assumption that it can't ever happen, then as that doesn't work out they go after the underlying definitions, and then when that doesn't work out they say the definitions are wrong and should be changed.


Which, BTW, I wouldn't mind if they were changed. If it was the question being asked I would have absolutely no qualms about operating off of a "highest supportable value" version of MV. That's because I don't care about their decision process or which way the market trends or who loses or who wins. I don't care, and I certify that I don't care in every appraisal report I sign. I only care about answering the question that's being asked via say what I do and do what I say.

I say I'm watching my data and applying the adjustments if and when they come up. Sometimes they do and sometimes they don't. I highly suspect that on at least some level you're doing the same except that you're looking at different datasets than I'm looking at and that data isn't trending exactly the same way. If that's the case then what this really boils down to is not that we're handling our data or analyses differently, but that we have different experiences with what we're looking at due to the differences in market conditions and property types.

Don't forget that my scope of practice is much broader than your's and that "typical seller motivations" really does vary some from one property type to another - even in the same neighborhood - and depending on economic conditions.

 

[George Hatch]

If they are deceased? yes.
It is called an estate sale and those are not market value transactions (tend to have deferred maintenance, and often have at least one highly motivated seller amongst the heirs especially after 1+ years of probate where many of the heirs are no longer quite so local).

With respect, seller motivations and physical condition are two separate factors and deserve to be considered separately.

 

[DMZwerg]

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.

That is one place where you stray and alter the FIRREA definition to meet your vision of it, rather than adjusting the properties to meet the definition.

FIRREA DoMV condition #3 states "(3) a reasonable time is allowed for exposure in the open market;"
If this time is limited or foreshortened at all then this switches to meet point 7 of the Definition of Disposition Value "7. An adequate marketing effort will be made in the limited time allowed for the completion of a sale." and thus, like stated in Guidepost 11, the appraiser has to be aware of which definition the comparable is meeting, and if not market value, the appraiser must (analyze, comment, and) adjust appropriately.

Then there is Terrel's point about banks being "under compulsion to sell". they are NOT legally allowed to own the OREO property (otherwise it would not be an OREO) but are given a period of time to liquidate it. This extended holding of OREOs and acting as landlord is what, IIRC, got Deutsch Bank in trouble. Banks have to sell, if not today then tomorrow (and absolutely within 3 years (renewable to 6)). That is textbook "under compulsion" to sell as well as almost certainly qualifying as "undue stimulus". We can show this is not "typically motivated" as comparing and contrasting the FIRREA definition and Disposition Value definition we note that condition 1 under FIRREA DoMV is split into 4. & 5. in Disposition Value definition indicating compulsion is never considered to be "typically motivated", and by inference we now have a working definition of "typically motivated" as meaning "not under compulsion" rather than the fluid "whatever I say is typical for the market" that some appraisers want to push.

 

[DMZwerg]

With respect, seller motivations and physical condition are two separate factors and deserve to be considered separately.

Yes, but I mentioned maintenance AND highly motivated seller ... are you saying an heir described as "desperate for cash" or "wanting to sell quick" is "typically motivated".

 

[George Hatch]

You are aware that banks are allowed to enter into land development deals as joint ventures and that there are all sorts of investments they are allowed to make so long as they have the reserves to cover them, right?

Banks can hold an asset indefinitely if they write the asset down using their reserves. If they choose not to write the asset down or can't afford it then that decision isn't actually the result of regulation (i.e. the legal compulsion referred to in the railroad cases that led to this definition of MV) but a primarily economic decision. Same as anyone else who is losing money when they sell in lieu of losing in bankruptcy.

 

[George Hatch]

Yes, but I mentioned maintenance AND highly motivated seller ... are you saying an heir described as "desperate for cash" or "wanting to sell quick" is "typically motivated".

Motivations aside, your inclusion of condition as a reason for not using those sales is a separate issue, worthy of consideration on its own and apart from seller motivation. As I've said repeatedly, I commonly make much larger adjustments for condition than for seller motivation.

Timeshare resales. Everyone is bleeding money every month, desperate for cash and wants to unload ASAP. But you don't like stressed out sellers so none of those transactions can be considered market sales, right?

 

[DMZwerg]

I say I'm watching my data and applying the adjustments if and when they come up. Sometimes they do and sometimes they don't. I highly suspect that on at least some level you're doing the same except that you're looking at different datasets than I'm looking at and that data isn't trending exactly the same way. If that's the case then what this really boils down to is not that we're handling our data or analyses differently, but that we have different experiences with what we're looking at due to the differences in market conditions and property types.

Actually, one point you seem to have missed is that I have said over and over again that the adjustment CAN be ZERO.
What I am saying is that just because it "happens" to be zero does not MAKE them the same, it just means it happens to be zero currently, much like the stopped clock. Said clock could be stopped for years, possibly even decades (look at portions of Detroit).

Don't forget that my scope of practice is much broader than your's and that "typical seller motivations" really does vary some from one property type to another - even in the same neighborhood - and depending on economic conditions.

Actually, it may be your broader scope of practice that may be tripping you up. In all but form reports under the auspices of the FIRREA definition you have latitude to change the definition to fit the exact market (or at least discuss it with the client so you are both clear on what value (definition) you are actually appraising). In doing so you may well have confused "typical seller motivations" with "typically motivated seller". The former literally varies from property to property and more than one may be present in any one particular property given multiple or even only one seller; the latter has very specific meaning. It is an idiosyncrasy of the English language. Just look at "a man eating shark" which in English can indicate a human eating a fish or a fish that eats humans but is distinct in both German and Chinese (German has different words for humans and animals eating, Chinese exact word sequence is key as well as words used). So here we have two phrases that sound like they should mean the same thing, namely "typical motivations" and "typically motivated", the thing is they are not and do not. Motivations if a noun, but motivated is a verb. Typical is an adjective whereas typically is an adverb. English language can be your fiend (not "friend", "fiend", as in "devil").

 

[DMZwerg]

Timeshare resales. Everyone is bleeding money every month, desperate for cash and wants to unload ASAP. But you don't like stressed out sellers so none of those transactions can be considered market sales, right?

"Market Sales" and "Sales that meet the Definition of Market Value (be it FIRREA or whatnot)" are again not the same thing. One is any sale on a particular market and the other is not. Again, English is your fiend.

To answer your question but NOT how asked, no, because they are all distressed sales wherein the seller is highly motivated to sell none of the sales would meet the standard Definition of Market Value and thus to determine market value you could not in good conscience just use those sales WITHOUT analysis, comment, and adjustment.

 

[residentialguy]

As far as I can tell I have no way of telling if you (or ResGuy) were even appraising prior to 2009. Actually and to be quite honest I strongly suspect that one or both of you guys were selling RE or brokering loans during that time frame.

You're resorting to ad hominem attacks by making up false motives?

Been appraising for 15 years, George. There are posters here that know me and can verify that. Never sold RE, nor worked at a bank or lender - never worked with mortgage other than as an appraiser. I'm sure the good appraisers here that have worked with loans or as a RE Agent appreciate your character assassination.

Poor Georgey...reached his end and grasping at anything.