REO sales and "Market Value"

[JRice0220]

I did leave one thing out; the buyers that are buying REOs come from the same buyer pool as normal sales; they aren't investors or flippers that buy to capture the discount from market value that magically disappears along with the REO status on resale.

Lots of easy money there. :icon_idea:

This was marketed as "Freddie Mac First Look Initiative / Owner Occupied offers only within the first 15 days". It sold in 10.

 

[residentialguy]

However, I wouldn't put 2 values, since the client didn't ask for them (and you're not getting paid for 2 appraisals)

I would just explain the REO situaltion, how the value of distressed sale might be and the pending sale in Reconciliation

REOs and Short Sales are prevalent; Viewing the subject's market value range in terms of the most probable price outcomes of a median sale, ignoring market reaction towards conditions of sale and buyer advantage, there is far more support for a low end of the range based upon REO sales than there is support for the Market Value estimate (opinion), which is based upon sales of typical buyer/seller motivation without a buyer advantage due to seller's undue stimulus/compulsion to sell.

SUBJECT'S PENDING SALE
The subject contract of $1700,000 was considered, however does not fall within a reasonable range of market value. The subject is a Lender Owned REO sale. The price may be affected by undue stimulus, stigma and atypical motivation. The subject contract was less than 2 weeks which is not a reasonable time allowed for exposure in the open market, thus no weight is placed on the subject contract as indicator of market value and is not supported by the sales comparison analysis.

 

[Elliott]

JRice,
I dunno what its market value is. What do you think the subject's market value is?

 

[JRice0220]

JRice,
I dunno what its market value is. What do you think the subject's market value is?

ahhh... what?

You want me to define market value as reflected by Fannie Mae?
You want me to tell you what I appraised this specific property for?

confused

 

[Elliott]

Standard definition of market value, the one we all use.

 

[George Hatch]

It doesn't matter what the contract sales price is as we never appraise based upon a purchase price. That being said yes it would look interesting if I appraised the unit for $20k over contract price/ MLS asking price. But this client wouldn't have an issue with it.

I've done that lots of times. The *only* time I give a contract any more weight than any other sale in my dataset is when my natural inclination is really close but falls a little short of the contract price, that price still being within my opinion of value as a range.

I generally reconcile for a reasonable range of value first before narrowing it to a value conclusion. If the contract price falls at either extreme of that range then I say so in my report.


As a side point to this discussion:

If we never, ever appraise above a contract price how can we possibly justify appraising below one? Sometimes people get hosed and sometimes they score a spectacular deal. The RE market is far from perfect.

 

[Randolph Kinney]

ahhh... what?

You want me to define market value as reflected by Fannie Mae?
You want me to tell you what I appraised this specific property for?

confused

Don't forget to have a statement about adequate exposure time to obtain market value, a USPAP requirement.

This was marketed as "Freddie Mac First Look Initiative / Owner Occupied offers only within the first 15 days". It sold in 10.

Also since you are saying there was a seller inducement to buyer, you need to compare that to other sales. Was there special financing?

 

[George Hatch]

This was marketed as "Freddie Mac First Look Initiative / Owner Occupied offers only within the first 15 days". It sold in 10.

Offhand I'd say there's at least some possibility that this is not the typical manner of exposure for most sales in the market. If so, the resulting contract price may be more reflective of a liquidation value rather than Market Value as defined in the GSE programs. You do have an arbitrarily limited exposure time as well as an arbitrary limitation on who can buy. We're definitely not allowing the market to run its course here.

And yeah, I do more than one value opinion in an appraisal report when appropriate, sometimes without even asking the client. Appraisers always retain the right to add to a SOW decision when necessary. Clients can tell me what their minimum expectations are but they can't tell me how far I can go beyond that.

 

[JRice0220]

Standard definition of market value, the one we all use.

As reflected on page 4 of the 1073 form.

Market value is the most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

I'm still confused. Are you trying to prove a point? Starting to come off that way...

Don't forget to have a statement about adequate exposure time to obtain market value, a USPAP requirement.

Also since you are saying there was a seller inducement to buyer, you need to compare that to other sales. Was there special financing?

Yep, I have my "reasonable exposure time" comment on all reports.

No special financing involved. 30 year FHA.

 

[George Hatch]

Everyone has comment language in their reports.

You have a reasonable exposure time comment, but does your analysis behind that summary coincide with the manner of exposure that led to this sales contract?

And yes, there are some very specific points being made in this thread. This is an issue that has been hotly debated on this forum for years. That means that people here disagree on certain elements of it.