REO sales and "Market Value"

[JSmith43]

Like I said, I don't have the rigid views Res Guy does,, that MV is always the highest value (it is the most probable price), and that all REO's sell low as distress sales.

jgrant, why do you continue to misstate his position? I'm not writing that of as a ditzy moment.

 

[J Grant]

jgrant, why do you continue to misstate his position? I'm not writing that of as a ditzy moment.

?? That is his position ! Read his posts? If you feel he has a different position, then what is it? He himself posted numerous times on this thread, that all REO sales are distress sales and sell below MV. As to MV being highest price, he might state otherwise, but all his methods of arriving at value would indicate it...heavily weighting sales contract prices, excluding REO or short sales when they are competitive, etc. I have my position and he has his...sometimes we agree on things, other times, not.

 

[J Grant]

From FHA :

Additional FHA Requirements​

There are several other miscellaneous requirements for FHA REO appraisals outlined in Appendix A.
• Interior photos are required in cases where total repair costs are $5,000 or greater
• A building sketch is required, but a floor plan or room layout is not required unless there is
evidence of functional obsolescence.
• Appraisal is made for market value, not liquidation or forced sale value
• The effective date is the date the appraiser performs the site visit for the subject property.
However an appraiser is permitted to use a different effective date, as long as the report
provides the alternative date and explains why the alternative date was used. The date when the
property was physically inspected must be indicated in the report.
• Provide a list of any buyer incentives that would enhance the marketability of the property
Otherwise, HUD REO appraisal assignments should be treated the same as any other appraisal for​

HUD/FHA. Appendix A specifically states

 

[residentialguy]

JG, I can't dictate what distressed sales do. If they sell below MV, then I report that. If they sell at MV price, I report it. If they sell over MV price, I report it. I communicate with the client because USPAP requires use to. It requires us to know the intent of the report. I don't change the MV definition, I make sure that it is clear to the client when I believe they might be looking for the market value of a sale with different conditions then those set in the 1004. If they are looking for the most probable price of a REO sale, they can use the REO addendum that takes into consideration that the subject is a REO (the 1004 does not...you won't find it listed in the grid under the subject). I agree with FHA's position "Appraisal is made for market value, not liquidation or forced sale value" The 1004 is not to find a value that has a force upon it, whether it results in a higher or lower price. That's what the REO addendum does.

Maybe instead of trying to explain my position, you just stick to your position.

 

[J Grant]

I was responding to the other poster, I agree, I like sticking to my position...look at the post above from FHA. They clearly state they want market value on their REO appraisal reports, which include an addendum. This is what the lender wants. same.

They are not asking fora MV with a different set of conditions then those set in the 1004...REO appraisals are done on the 1004 with an addendum attached...

What price points REO's are selling for is a diff issue...if we use any REO sales as comps, that will reveal what they are selling for. That still does not change the MV definition or purpose of the report.

Using USPAP as an excuse for changing the MV definition, because you think you are "communicating" with your client is kind of flimsy...the client can be FHA if it is an FHA loan originally on the property, Fannie if it was a fannie loan, the underwriting department...the person who you communicate with , who assigned you the appraisal, may not fully represent "the client" and most likely does not have a clear idea of what the heck you are talking about regarding MV and what the report is "really" intended to be used for and that an REO is a distressed sale and that should be the MV and so on...they probably agree with you because frankly, they don't understand the implications and it sounds reasonable...but the client is really who backed the loan, and above, FHA clearly states they want MV on an REO appraisal and Fannie has the same position.

 

[residentialguy]

They clearly state they want market value on their REO appraisal reports, which include an addendum. This is what the lender wants. same.

That's for the 1004, not the addedum.


"Using USPAP as an excuse for changing the MV definition, because you think you are "communicating" with your client is kind of flimsy..."

Another misstate by you: I don't change the MV definition.

 

[Terrel L. Shields]

JG said Res Guy's position is

that all REO sales are distress sales and sell below MV....that MV is always the highest value (it is the most probable price),

I disagree, it is mistating Res position. Smith is exactly right. It is a distortion of our opinions to argue that we think MV is the highest value.

But I do argue 3 things. It isn't the lowest (REO) price either. Secondly, REOs cannot meet the strict definitions and parameters within MV. And, finally, you cannot fault a "cash" sale and then discount that unless you can prove that MV definition excludes cash buyers or that the buyer is stupid (ill informed.) In most cases, the cash buyer is very well informed or they would not have cash to begin with.

Just explain on what basis that one can argue to DEDUCT from a cash sale an amount to get that sale to match an REO sale. How does that work? If you cannot argue that the sale is arm's length, you cannot argue it is in terms of cash or equal thereof, and you cannot argue that the buyer is stupid...then what basis can you argue for a reduction in the sale price to "meet" this REO-is-Market pricing? Did you do that prior to 2007...short answer? Nope. Rejected those bank-owned, HUD repo sales then...you bet you did, didn't you? WHY? Because they were not arm's length sales. So when did the definition of MV change? It didn't.

Questions. How can you argue that a house, owner-occupied, will "sell" for a reduced price (REO /short sales as comps) when you know that it will go on the market being priced like non-REO properties, without the seller being compelled to sell? Why do you think such sales are not "arm's length" simply because they sell for more? How do you know if you don't talk to the sellers and buyers both? Does the Realtor know?

Can you demonstrate that REOs are selling for the same price that homes owned by unpressured sellers sell for? How can you make an adjustment DOWN to an arm's length sale? It violates everything I ever though I knew about real estate.

 

[J Grant]

RG, if you are modifying the MV with words such as , "they want the MV as a distressed sale property", or, "they want the MV as a bank owned sale", that is changing it...

As far as MV, it states it again on the addendum. Each of the four values on the addendum is stated in terms of market value. Open and REO addendum on your software , what does it say?

For the limited exposure time DOM value, it still states, "Market value in the client imposed limited exposure time"

That is different than giving them a LV, or a distressed sale value, which indicates the client is compelled to, or must sell within the limited marketing time.

They are not compelled to sell it in the limited exposure time, they are simply asking, what would the MVO be within X days market exposure.

 

[J Grant]

JG said Res Guy's position is I disagree, it is mistating Res position. Smith is exactly right. It is a distortion of our opinions to argue that we think MV is the highest value.

Call it a distortion if you will, but many appraisers appraise this way, that MV is the highest value. As we know, MV can sometimes be the highest value, sometimes a mid range, somtimes the lowest.

But I do argue 3 things. It isn't the lowest (REO) price either.

MV is not automatically the lowest (REO price ) either. However, depending on the subject, the comps, market conditions etc, MV can be the highest value , as long as it is most probable, a mid range value, or the lowest. There is no limitation, or bottom floor, or top floor, imposed on MV , That is an appraiser assumption, that MV can never be the lowest value. If it can be the highest, then why can't if be the lowest?

Secondly, REOs cannot meet the strict definitions and parameters within MV. And, finally, you cannot fault a "cash" sale and then discount that unless you can prove that MV definition excludes cash buyers or that the buyer is stupid (ill informed.) In most cases, the cash buyer is very well informed or they would not have cash to begin with.

I personally don't do this, and don't undersand it either, discounting cash sales...makes no sense. There have been times where I have adjusted REO sales UP, (and other sales), that sold below maket due to all cash offer...this can be seen when they sell in short DOM below typical..the seller is taking less $ for the security and speed of an all cash offer.

Just explain on what basis that one can argue to DEDUCT from a cash sale an amount to get that sale to match an REO sale. How does that work? If you cannot argue that the sale is arm's length, you cannot argue it is in terms of cash or equal thereof, and you cannot argue that the buyer is stupid...then what basis can you argue for a reduction in the sale price to "meet" this REO-is-Market pricing? Did you do that prior to 2007...short answer? Nope. Rejected those bank-owned, HUD repo sales then...you bet you did, didn't you? WHY? Because they were not arm's length sales. So when did the definition of MV change? It didn't.

I don't do what you are talking about above and don't think many other appraisers do either. I don't quite get the point of what you are arguing... I did once or twice adjust what I thought were above market deals down to REO pricing levels...that was 2 years ago, in a market that was in steep decline, with a few highly above market flip sales present.

Questions. How can you argue that a house, owner-occupied, will "sell" for a reduced price (REO /short sales as comps) when you know that it will go on the market being priced like non-REO properties, without the seller being compelled to sell? Why do you think such sales are not "arm's length" simply because they sell for more? How do you know if you don't talk to the sellers and buyers both? Does the Realtor know?

Owner occupied is not in the definition of MV. That is again, an appraiser assumption. The word typically motivated buyer and seller is in the def of MV. When most sellers in homes similar to your subject are owner occupied, then their motivations are typical. When most sellers are lendesr, their motivations may be typical. When sales are a mix, see what market trends indicate, and what adjustments need to be made for what that market indicates as typical.

Can you demonstrate that REOs are selling for the same price that homes owned by unpressured sellers sell for? How can you make an adjustment DOWN to an arm's length sale? It violates everything I ever though I knew about real estate.

It doesn't matter if REO or non REO are selling at the same price...you have to work with what the market is showing. We have to derive the most probable price our subject would bring in the open and competitive market. IF REO's are true substitutes for your subject, then your market will determine if your subject would sell for more than the competing REO's. If you see that is the case, adjust the REO's up. In a declining or REO inventory saturated market, that may not be the case, and your subject, even though owner occupied, might only sell for what the REO competition is selling for. There is no rule that applies, it is market specific and time specific. I appraised homes a year ago when market was in decline where I did not adjust REO sales up...now a year later , if those areas are in recovery with less REO inventory and sales prices stable to increasing , I will adjust the REO sales up.

 

[residentialguy]

RG, if you are modifying the MV with words such as , "they want the MV as a distressed sale property", or, "they want the MV as a bank owned sale", that is changing it...

No it's not...if they want the value of a sale with any different conditions other than what is stated in the definition of MV, then they will have to use another means than the 1004, like a REO addendum. You can add other market values with different conditions applied to that value, but page 2 is for market value with the conditions explained in the definition.

As far as MV, it states it again on the addendum. Each of the four values on the addendum is stated in terms of market value. Open and REO addendum on your software , what does it say?

The want different conditions regulating the market value. The 1004 does not want REO value...no undue stimulus. You won't find REO mentioned under the subject for consideration in the sales grid, but you will for the comps. (if they have undue stimulus, you would take that into consideration). But the subject is a presumed sale and the current state of being a REO is not a factor.

The REO addendum, what do you see in the grid? I point blank asks you, "Is the subject a REO?" Now it wants you to take that the subject is a REO into consideration! The MV definitions of REO at the bottom of the page are nothing like the MV conditions set on the 1004. In fact it carefully avoids it and separates itself when asking for similar adequate exposure.