Apparently, you missed it. The FIRST SENTENCE in the definition of MV sets the parameters. ".........under all conditions requisite to a fair sale...........and assuming the price is not affected by undue stimulus."
You are lifting one segment from the definition, and there are many sections that have to be satisfied. But focusing on this section, what is "unfair" about an REO sale? It is closed in cash or equiv, a deed is granted, an attorney for buyer can review the contract, the buyer is well informed , etc.
Then there is undue stimulus. The problem is, undue stimulus is not precisely defined. This applies to both REO, and non REO sales. Some amount of stimulus is implied in a property sale, as it is a time consuming and expensive and uprooting process.
Thus, the term is not just stimulus, but "undue" stimulus. When enough sales of a certain type are occuring in a market, such as REO sales, can the stimulus behind them continue to be viewed as "undue"?
The sources that support using REO comps, where appropriate, recognize that when the stimulus behind the sales becomes common, aka typical, and market accepted, it is no longer "undue". If an appraiser feels the stimulus behind an REO sale was enough to impact price, they can adjust for that. But that is different than excluding them or making assumptions based on history, or academia, or other areas that do not apply in apprasial value development.
The problem is that, by isolating just this one element of the MV definition, "undue stimululs", and "fair sale", the rest of the market definition is ignored , and REO sales that are marketed on MLS and avail for reasonable exposure, meet the test of the majority of MV definition.
I'll lift some sections from the MV definition: ."a property should bring in a competitive and open market": when REO sales are on MLS and avail to buyers, they comprise part of open and competitive market.
"The buyer and seller each acting prudently, knowledgably".. Buyers of REO property are often the more knoweldable buyers.
Most comps are weaker in fulfilling some areas of the MV definition when we grid them and adjust , and stronger in other areas, the same goes for REO sales.
If the authors of this definition of MV wanted it to be "situational", they could have simply said they wanted the most probable price, motivations of buyers & sellers be "darned."
The authors pretty much did that. The motivation section of the MV definiton merely states that the "buyer and seller are typically motivated". When large numbers of buyers elect to pruchase REO's, how can you say they are not typically motivated? And when the sellers of large numbers fo properties in an area are lenders, and their actions are prevalent, how can you say they are not typically motivated? Typically motivated, as compared to whom, or what? If you argue that banks are not typically motivated compared to a private party homeowner, again, a private party homeowner is not defined as a typical benchamark. To say that th MV defintion implies a private party homewoner is based on ...what?
If the authors did not want the MV def to be situational, then they needed to be far more specific. I would have no problem with a MV definition that at the end, contained the sentence, "excluding REO sales". But, the MV definition makes no such exclusion. This was even tried at the state legislative level, when Nevada and afew other states tried to pass legislation barring the use of REO sales in lending appraisals. It did not pass..the AI, and most likely lenders themselves lobbied against its passage, stating that excluding REO sales could lead to misleading assignment results.
For better or worse, despite the not clearly defined phrase, "undue stimulus", seems that the users of MV def appraisals, at least on the lender side, want the definition to be situational. I am using your term in calling the definition situation. The definition is what it is, but the market dymanics and siutaitons change, and the MV definition is left broad enough to encompass that.
e the point rather well & referenced Professor Grasskamp's academic work on the matter.
His academic work did not translate into the language of the existing MV definition?.
Grasskamp was department chair at the University of Wisconsin's Center for Real Estate at the WI School of Business. A CG that went there worked for me a while about 20 years ago. I don't follow his academic work closely like Terell & S. Santora.
The academic workl might be interesting, but if it is not part of the definition, we can't develop a value around it.
With this real estate market in an obvious long term implosion, the conditions set forth in the definition of MV that lending related appraisals need to address have become problematic, in places where there is scant current data from transactions that can even come close to the hypothetical conditions set forth in the MV definition. But, stuck in law, we are, with the definition of MV for certain types of appraisal assignments.
This is remindful of a 2nd amendment debate where one side says "you can't be serious, this is the 21st century" and the other side says "you'll have to pry it out of hand of my cold, dead body." The Constitution is hard to change, for a reason. So is the Def. of MV, since it is rolled into legislation & regulation.
I say, keep the 2nd Amendment & those opposed can work to amend the constitution. Same goes for those opposed to the current Definition of MV. I'm all for unwinding it from legislation & regulation. But, until that happens, I'm all for following the directions it offers, to the best of my ability. After all, I sign a certification to do so.
