REO sales and "Market Value"

[residentialguy]

JG, the buyer of the property is not going into foreclosure, nor are they going into foreclosure in the near future. Most of the homeowners are hunkered down and not selling, they are not going into foreclosure. These REO sales have nothing to do with the intended use of the lender. They may affect the sales of the homeowners, but just because they're hunkered down and not selling freely doesn't mean you switch over to what ever is selling and call it market value for the lender's purpose. That is just outright wrong. These are high stimulus distressed sales. The distressed sales may be so entrenched that the homeowner's house isn't worth a dime more...that's fine. Let the non-distressed sales reflect that.

 

[Randolph Kinney]

JG, the buyer of the property is not going into foreclosure, nor are they going into foreclosure in the near future. Most of the homeowners are hunkered down and not selling, they are not going into foreclosure.

The federal reserve has reported that there are 11.1 million homes that have underwater mortgages. These homeowners cannot sell, unless it is a short sell.

Of the 11.1 million underwater mortgages, 2.2 million have stopped paying their mortgage and no notice of default has been filed. 600,000 of these non-paying mortgages are in California.

Banks have been letting people stay in their homes without making a mortgage payment for over 2 years.

 

[George Hatch]

Any word yet on the question of the subdivisions of recently built homes where 100% of the owners are underwater? What are the buyers in any of those resales going to be basing their decisions upon?

 

[Terrel L. Shields]

If upward adjusting REO's in bifuricated markets were intellecutal acrobatics;

The market is bifricated, the definition of MV is not. I'm with RES all the way here.
It is insane to take a perfectly arm's length cash sale and then ADJUST IT DOWN!!! That's worse than stupid in my book, it's a defalcation of the homeowner who will place their property on the market and sell it for what they ask or something near it without the buyer ever feeling compelled or forced to buy an REO or even interested in same. REOs are dark houses. REOs have risk. REOs are unknowns with unknown issues that an occupant would be able to, if fact, required to in most states to disclose. They are the distressed sale NOT the arm's length sales that you all seem to want to ADJUST DOWN!!!!

 

[residentialguy]

Any word yet on the question of the subdivisions of recently built homes where 100% of the owners are underwater? What are the buyers in any of those resales going to be basing their decisions upon?

Many are underwater on their house. So what. Their house is doing exactly what they bought it for. Unlike the bank owned. Ok, so their mortgage is higher than the MV. That's an automatic value crusher? Do you do a survey of everyone's mortgage amount and lower the MV when it hits a certain threshold? How can you determine if they all have no way to pay off the mortgage? And there must have been some REOs recently sold there. Are you saying that the recent buyers of the REOs are underwater too? I don't think so, George. Have any other stories I can punch holes in? :new_2gunsfiring_v1:

 

[Mile High Trout]

<>

Assuming the non distressed sales were not driven by the distressed sales somehow, in a perfect world where the principals of substitution were by type of seller and not total market availability? Again, the lenders seek to solidify these policies by categorization of type to somehow influence the definition, but that's a manufactured value, not a true market value. True market value has always, and will always rest on the principals of substitution in the marketplace. Lenders sure do make it tough for regular ma and pa to buy a liquid pricer, but it happens. It's not against the rules. If a typically motivated buyer can replace it for less, the seller is simply in a bear market. Tough for the seller, still rather simple for the appraiser.

Look it's not 'only properly defined as market value if a sale occurs in the bullish or bull side of the market. Market value is what values the market represents, based on the motivations and positions of the seller, especially the primary portion of the sellers.

If most sellers are liquid, it's a bear market and that's market value. So tough cookies, it's not appropriate to take the 10/20% of non distressed examples and boost everything up below that assuming it's not market or something. Someone willingly took possession and sold the homes. Regardless of how idiotic or damaging such an activity is, the sale occurred. It's done, over with finito, and clearly ALL SALES represent market value of some sort or another. The definition of market value is a minor subset of consideration, not a major one. If it's a sale, it's a sale. I don't care if aliens sold the property, it's a market sale and if that drives other sales, it's fair game and should not be changed or boosted into something else based on a biased judgement that such sale was somehow 'not fair.'

No crying in real estate. Nobody said real estate was nice, pretty, or fair.

 

[J Grant]

You don't get it...there is a chain of events that lead to defaults and REO's (otherwise known as market conditions). When market conditions are prevalent in an area, an appraiser needs to understand them.

Many are underwater on their house. So what.

So what?...being underwater is what leads to default. If you bought a house for 300k , or refied for a high amount, and have a mortage of 270k and can only sell it for 200k, you have negative equity. If your mtge payment is twice what it costs to rent the same house, a good chance you are just going to walk.

Their house is doing exactly what they bought it for.

What does this mean?

Unlike the bank owned.

Today's homeowner who defaults tomorrow, is next month's bank owned.

So their mortgage is higher than the MV. That's an automatic value crusher?

Uh, yes, it's a "value crusher", they are in a neg equity position. They can't sell it for the amount of the mortgage...they have two choices, default or short sale. There are some who will stay in an underwater homes, but many who will not. The mtge payments can be very high, why keep paying high mtge payments for years when there is no equity?

Do you do a survey of everyone's mortgage amount and lower the MV when it hits a certain threshold? How can you determine if they all have no way to pay off the mortgage? And there must have been some REOs recently sold there.

Are you saying that the recent buyers of the REOs are underwater too?

Of course recent buyers of REO's are not under water. One thing has nothing to do with another. Complete lack of understanding and context...

I don't think so, George. Have any other stories I can punch holes in? :new_2gunsfiring_v1:

Above commments stuck in...:icon_idea:

 

[J Grant]

JG, the buyer of the property is not going into foreclosure, nor are they going into foreclosure in the near future. Most of the homeowners are hunkered down and not selling, they are not going into foreclosure. These REO sales have nothing to do with the intended use of the lender. They may affect the sales of the homeowners, but just because they're hunkered down and not selling freely doesn't mean you switch over to what ever is selling and call it market value for the lender's purpose. That is just outright wrong. These are high stimulus distressed sales. The distressed sales may be so entrenched that the homeowner's house isn't worth a dime more...that's fine. Let the non-distressed sales reflect that.

This post is so illogical and makes no sense can't even figure it out!

 

[Mile High Trout]

REOs are dark houses. REOs have risk. REOs are unknowns with unknown issues that an occupant would be able to,

No purchase on that concept T.

Many a nice as double D houses go through the REO pipeline. And it's the typical game to flop the firesale and then flip back the arms length sale with clever disclosure, or more notably; lack of proper initial disclosure.

And who's to say the non foreclosed examples actually had fair disclosure anyways? Fair disclosure is basically more of a misdirectional argument. You can hardly prove fair disclosure is a standard practice, what with every piece of paper signed originating from the mind of a sleezy lawyer who forces the buyer to accept all responsibility regardless of disclosure issues. And there certainly is not a consortium of interested parties pushing for better home inspection services like there is for appraisal services.

Anything goes FHA, and most Realtors don't give a hoot about proper representation of the buyer. They care a lot more about easing over all concerns and closing those deals.

 

[J Grant]

The market is bifricated, the definition of MV is not. I'm with RES all the way here.
It is insane to take a perfectly arm's length cash sale and then ADJUST IT DOWN!!! That's worse than stupid in my book, it's a defalcation of the homeowner who will place their property on the market and sell it for what they ask or something near it without the buyer ever feeling compelled or forced to buy an REO or even interested in same. REOs are dark houses. REOs have risk. REOs are unknowns with unknown issues that an occupant would be able to, if fact, required to in most states to disclose. They are the distressed sale NOT the arm's length sales that you all seem to want to ADJUST DOWN!!!!

Instead of being outraged at an appraiser who adjusted a private sale down (likely because of an extreme market decline), where is the outrage at all the number hitter appraisers who "helped" these homeowners get houses for sky high prices or target refi amounts?

If these homes had not appraised for ridiculous un supported amounts, these buyers would not be under water in neg equity and defaulting.

It is amazing that appraisers have no sense of context or what led to the high # of foreclosures and short sales, yet can be highly offended by inclusion of an REO sale in a report.

It is not the inclusion of an REO sale in a report that is offensive, it is the whole chain of events that led the house to become an REO that is offensive.