REO sales and "Market Value"

[Joyce Potts]

The six month (6) MLS listing starts out as arm's length property and despite several price reductions, fails to sell.

Now the owner realizes he's upside down. The six month (6) MLS listing is now marketed as a short sale and despite several price reductions, fails to sell.

Foreclosure takes place, the property is still in GOOD condition, and based on a thorough analysis of ALL THE MARKET DATA and inventory levels and all other market trend factors have remained essentionally the same.

This foreclosure finally sells after 60 days.

Explain to me again why this is not worty of consideration in the analysis when appraising a home in the same development, assuming all other physical, functional and locational/external obsolesence are the same as when it was marketed as an arm's-length sale again.

 

[Webbed Feet]

<....snip....>

Now my question is adjusting the comparables for ownership. It makes sense to make an upward adjustment to REO sales when you are appraising a Private sale because REO sales are typically sold at "liquidation value" or less than market value for quick sale. But my confusion arises when I am appraising this REO sale at "market value" with a reasonable exposure time of 3-6 months and am using REO sales that sold at liquidation value and not making an upward adjustment.

What do you guys think? Or how have you been handling this same situation?

<....snip.....>

I think in the first case you've been correct, and in the second case you're messing up. The definition of Market Value did not change between the two did it? You did not switch to opining "liquidation value" in the second case did you? So why would you give a rip that in the second case the subject is an REO sale? Answer: We don't give a rip. The way Market Value is reflected in the first case, is exactly how Market Value would be reflected in the second case. It doesn't change.

 

[Joyce Potts]

You're right Duck. That's why every sale has to be analyzed individually and not profiled or discredited based on profiling. When was the last time a client by way of a client assignment conidtion instructed you to never use a short sale or REO/Bank Owned sale?

1) United States Bankruptcy Court, Northern California District, Case Number 10-50394-ASW, Victoria and Annaliza Duarte Debtors, Memorandum Decision Re: Motion to Determine Value and Status of Junior Lienholder's Claim. (Use of Short Sales and Bank Owned Market Data).

http://www.bankruptcymastery.com/wp-content/uploads/2011/07/duarte-dueling-appraisers.pdf

2) Appraisal Foundation - Appraisal Opinion AO-13:

http://appraiserworkshops.blogspot.com/2011/06/appraisal-foundation-q.html

3) Appraisal Institute -

http://info.appraisalinstitute.org/...-Choose-Comparable-Sales-in-Declining-Markets

 

[Webbed Feet]

<....snip....>

You need to define or reference a source for distressed value.

Write it up and ship it.

How about several hundred (several thousand or tens of thousands?) tax court rulings across the U.S.?

 

[Randolph Kinney]

The Geography of Underwater Homes

http://www.theatlanticcities.com/housing/2012/08/geography-underwater-homes/3034/

While the amount of negative equity declined by $42 billion in the second quarter this year, it remained a whopping $1.15 trillion. Of all homeowners, 15.3 million (30.9 percent) remained underwater in the second quarter, though this was down from 15.7 million homeowners or 31.4 percent in the first quarter.

But the trend remains incredibly uneven across the United States. In more than half of U.S. metros (179 in all), 25 percent or more or homeowners remain underwater. And, there are 22 metros, 6.5 percent of them, where more than half of all homeowners are underwater. Fernley, Nevada has the highest rate of underwater homeowners in the country with 69.7 percent, and Huntingdon, Pennsylvania has the lowest, 4.7 percent.

Underwater homes are concentrated in the Sunbelt, with Florida and California showing especially high concentrations as the map shows.

Looking just at large metros — those with more than one million people — more than two-thirds of homeowners in Las Vegas (68.5 percent) remain underwater. More than half of homeowners are underwater in Atlanta, Orlando, Phoenix, Riverside, and Jacksonville. And more than 40 percent are underwater in Sacramento, Detroit, Tampa, Miami, and Memphis.

 

[J Grant]

Your post 201 was on point, Joyce, a good perspective on chain of events. Great chart, Randloph! (although not great news )

 

[Randolph Kinney]

Your post 201 was on point, Joyce, a good perspective on chain of events. Great chart, Randloph! (although not great news )

As you can see, the boy in Minnesota does not have a problem with underwater mortgages.

California will be having distressed sales for more than 10 years.

 

[residentialguy]

The six month (6) MLS listing starts out as arm's length property and despite several price reductions, fails to sell.

Now the owner realizes he's upside down. The six month (6) MLS listing is now marketed as a short sale and despite several price reductions, fails to sell.

Foreclosure takes place, the property is still in GOOD condition, and based on a thorough analysis of ALL THE MARKET DATA and inventory levels and all other market trend factors have remained essentionally the same.

This foreclosure finally sells after 60 days.

Explain to me again why this is not worty of consideration in the analysis when appraising a home in the same development, assuming all other physical, functional and locational/external obsolesence are the same as when it was marketed as an arm's-length sale again.

It is worthy of consideration. The house was not priced properly for the market of an nondistressed sale and started chasing the market; they eventually couldn't afford to do that an dumped the house, now it sold as a distressed REO sale, probably at below market value. What more is there to explain. He had a bad realtor. While we need to consider it....it doesn't mean that the REO is a good reflection of MV.

 

[residentialguy]

As you can see, the boy in Minnesota does not have a problem with underwater mortgages.

California will be having distressed sales for more than 10 years.

I'm from the Mpls area. 30-40% is not a problem? woohoo I'll alert the press.


I also like the humor of a fairly new appraiser (lic in '05) calling me a boy. Must be that lack of sun damage on my face. Maybe I should change my name to babyfaceguy

 

[Randolph Kinney]

I'm from the Mpls area. 30-40% is not a problem? woohoo I'll alert the press.


I also like the humor of a fairly new appraiser (lic in '05) calling me a boy. Must be that lack of sun damage on my face. Maybe I should change my name to babyfaceguy

So is it 30% or 40%? I never read in the press about Minneapolis having tough times with foreclosures, short sales and underwater mortgages.

Yes BOY? And your license year? :icon_mrgreen: