REO sales and "Market Value"

[J Grant]

Which post are you labeling as "ridiculous"? If a client asks for a value constrained in time to 10 days, is it still MV? See the point?

Obviously, the question answers itself. If a lender asks for a value in 10 days, it is a MV within that time frame. If you look up disposition value and distress sale value, they are still market value opinions...they are market values within certain defined parameters that are spelled out.

However, I have never had an REO addendum ask for a DOM less than 30 days. IF a lender specified a 10 day DOM, then in that case, I might call the lender. But I have never seen them ask for it.

Res Guy calls the lender on an REO as subject even when it is a conventional appraisal, that is why I called his post ridiculous.

Nothing personal, Jgrant. I hope the following comments help explain what a trap a REO addendum is for the typical appraiser. It doesn't matter how many REO appraisals you have done wrong without consequences (so far), the fact is that the client time constraint imposed by the client could only by chance, result in a MV conclusion, if the request was properly incorporated.

The point of the limited time exposure in an addendum is for the appraisrer to opine the most probable price the subject will sell at within a more limited time frame...which is typically lower, assuming prevailing time frames are longer for DOM. If prevailing marketing time is 30 days, then there should not be a difference ,if the lender imposed DOM on the REO addendum is 30 days.

.Safety in numbers? Not while marching over hot coals at an Anthony Robbins seminar:icon_mrgreen: The trick is to not be the first one (you need a tester to see if enough insulating ash has formed) and not be toward the back of the pack, lest someone's sweaty feet remove too much ash before your turn).

The part that you think is ridiculous, hopefully, is the notion that there can be meaningful dialog between an appraiser and client at the decision making level for that lending client. I agree with you there

A REO addendum with multiple values based upon market times different from what the MV market time is for the subject under the conditions set forth in the MV definition, the appraiser ends up opining a value other than MV but fails to define that value and state the source of the definition per USPAP.

The fact that this is regularly muffed by many appraisers should not give you comfort.

See above comments.

 

[residentialguy]

I've never seen an appraiser get into trouble for clarifying and thoroughly explainingthe report and conclusions.

What appraisers usually get in trouble for is not clarifying an not thoroughly explaining the report and conclusions.

 

[J Grant]

I disagree ( unless the client imposed marketing time is so short that it meets the severly shortend threshold, such as 5 or 10 days , which could be below prevailing conditions for an open and competitive market sale That might require a diff value definition, in which case I would call the client to clarify)

But for regular length client imposed marketing times, such as 30 days or 60 days, if these DOM times are within prevailing market conditions, then the correct way is to look at homes that have sold in 30 days, for example, and see if they sold for less than homes that sold in 90 days. Do enough of that to get a percentage, and apply that to your MV opinion on the report. If your MVO was 100k in 90-120 day market exposure, and sales with 30 day list times are selling on average 10% less, then your value on the addendum in the 30 day DOM would 90 k.

It is still a MVO, just one modified to meet a specific market esposure.

 

[J Grant]

I've never seen an appraiser get into trouble for clarifying and thoroughly explainingthe report and conclusions.

What appraisers usually get in trouble for is not clarifying an not thoroughly explaining the report and conclusions.

Res Guy, the issue is, you are not just "clarifying" or "clarifying and explaining". You are calling a client when you have an REO as subject, and asking them if they want you appraise to a "different" kind of MV, because according to you , an REO is a distressed sale and yada yada yada. They probably agree, because they may not be fully understanding what you mean. Who are you calling to "clarify" with, and does this person really represent what the client, which means underwriting, expects? Do you call UW and discuss this proposition of yours to value the subject as a distress sale property? I doubt it, because they wouldn't agree. They know better. You are calling some personal contact or clerk who ordered the appraisal, and I doubt these people have the same understanding that an UW does of MV, and that if they are ordering it on a UARAR form, that the appraiser is not supposed to be modifying the definition of MV on the cert.

So you call someone up, have your conversation, basically telling them that because the subject is an REO, you are going to appraise it as a distressed sale value . That would be changing the definition of MV, which we are not supposed to do on the cert.

But you don't change the definition of MV. You use a URAR form, which has MV as purpose of appraisal, but you opine a "different" value, (distress sale value,) because in your mind, you clarified it, and that is what the client really wants. But it is not disclosed, the MV definition is not changed or modified, so it is misleading...you are opiniong a value to a distressed sale definition of value, while still using a URAR with a market value purpose and preprinted cert definition. You add in a few explanations, but don't disclose that you changed/modified the definition of value. That is the problem with what you are doing.

The reason you have to do all this, is you don't believe an REO can ever sell for market value, so therefore, you are unable to do a MV appraisal for one. You are convinced they always sell for below MV, so when asked to do a MV report with an REO as subject, it creates a dilema for you.

 

[residentialguy]

30 day and 90 day request typically falls under Liquidation value and Disposition Value

Both values differ from MV in that there is a limited marketing period and the seller is under compulsion to sell (liquidation being more extreme).

 

[residentialguy]

Who are you calling to "clarify" with, and does this person really represent what the client, which means underwriting, expects?

That doesn't matter. What matters is that I did the best that I was able and thoroughly explained it.

 

[J Grant]

30 day and 90 day request typically falls under Liquidation value and Disposition Value

Sorry, but they don't necessarily. LV is very specific and refers to a severly shortened time frame, and states that the seller is compelled to sell within that time frame, must sell within that time frame. A lender asking for a 60 day estimate of value does not necessarily have to sell within that 60 days. They just are asking for what the probable price would bring within the 60 day DOM. Distress sale value has some specific verbiage as well , I will look up some definitions. 30 or 60 or 90 days is usually a market accepted range, whereas LV would mean a severely shortened time frame, such as 5 days, or a one day auction.

Both values differ from MV in that there is a limited marketing period and the seller is under compulsion to sell (liquidation being more extreme).

You just answered the question, but wrongly. When a lender asks for 30 day DOM estimate, they are not stating they HAVE to sell within 30 days, nor does it state on the addendum that the lender is COMPELLED to sell within 30 days. You are the one inserting those meanings in.

The lender is asking for most probable price a property would bring in a shortened DOM, but it is a DOM that usually is within an accepted level in area for a number of listings. If it is vastly different, there would be a steeper discount. If you are opining a 30 day DOM in an area where typical listings are on market 6 months, the discount will be far steeper. Most lenders ask for a 60-90 day period, I actually only had one lender client who asked for 30 days.

 

[residentialguy]

But you don't change the definition of MV. You use a URAR form, which has MV as purpose of appraisal, but you opine a "different" value, (distress sale value,) because in your mind, you clarified it, and that is what the client really wants. But it is not disclosed, the MV definition is not changed or modified, so it is misleading...you are opiniong a value to a distressed sale definition of value, while still using a URAR with a market value purpose and preprinted cert definition. You add in a few explanations, but don't disclose that you changed/modified the definition of value. That is the problem with what you are doing.

I agree :icon_mrgreen:.

That's when you say, "let's use the correct form, shall we".

I've done that and of course they want that form. Sooooo...I tell them I can use it but to make note that MV may not be the same for a distressed sale. I then let them know that I clarify that on the report as a reminder. (I will also state on the report that this conversation with the client took place and this was understood by the client).

 

[J Grant]

A lender could have various reasons for the 30-60 day price opinion. They may get some offers in the first 30 days, for example, and want to know how different those offers may be then if they keep house on market longer, whether or not to accept offers that come in within 30 days. They may be looking for list price options, and comparing appraisal opinions with BPO's or listing agent recomendations.

An appraiser can talk about distressed or liquidation sale values within the report, but that is different than changing the MV def to a LV def.

 

[J Grant]

I agree :icon_mrgreen:.

That's when you say, "let's use the correct form, shall we".

I've done that and of course they want that form. Sooooo...I tell them I can use it but to make note that MV may not be the same for a distressed sale. I then let them know that I clarify that on the report as a reminder. (I will also state on the report that this conversation with the client took place and this was understood by the client).

Again, this is goobdley gook. Hate to tell you, but you are misleading your client, and users of report. You are using the URAR form with a pre printed MV def that is not supposed to be modified. Then you are substituting your own version of value, a distressed sale value, which is misleading (despite your clarification as a "Reminder"). It is misleading because 1) we are not supposed to modify the pre printed cerd definition, and you just did, by substituting a "distressed sale value", and it is misleading, because despite your notes about the conversation, chances are whoever you talked to did not fully understand the implications of changgng the MV definition, and even if they did, are not authorized by underwriting to make these changes on behalf of "the client". If it gets past underwriting, they probably assume you are opining MV , because that is what is stated as the purpose of the report.

Imo, it is problematic on a lot of levels, but that is just my opinion!

(for curiosity, do you ask underwriting for clearance on this? Who is the person you are talking to? )