REO sales and "Market Value"

[George Hatch]

Terr,

You're welcome to read it however you want but it still says what it says and more specifically it doesn't say what you guys are saying you're reading into it.

What part of

A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp.

are you guys not understanding? They aren't saying it's always like that but they are *clearly* and *repeatedly* acknowledging that it can sometimes play out that way.

 

[Terrel L. Shields]

No one argues that REOs are not data - very significant to the market. But they are never "market" per se. The unadjusted REO almost always leads to undervaluation.

 

[CANative]

Appraisers cannot categorically discount foreclosures and short sales as potential comps in the sales comparison approach. However, due to differences between their conditions of sale and the conditions outlined in the market value definition they might not be usable as comps. Foreclosures and short sales usually do not meet the conditions outlined in the definition of market value. A short sale or a sale of a property that occurred prior to a foreclosure might have involved atypical seller motivations (e.g., a highly motivated seller.) A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp. However, if the foreclosed property was sold without a typical marketing program, or if it had become stigmatized as a foreclosure, it might need to be adjusted if used as a comp. Further, some foreclosed properties are in inferior condition, so adjustments for physical condition may be needed.

Now why didn't I think of that? Oh wait... I did.

 

[J Grant]

Terrel, what about the obligation to deliver credible assignment results?

Do you retrospective your effective date to 2002, since you are reporting market conditions a decade old ?

 

[J Grant]

No one argues that REOs are not data - very significant to the market. But they are never "market" per se. The unadjusted REO almost always leads to undervaluation.

When an REO deserves to be adjusted up, such as when a market is in recovery, or the REO inventory is waning, (or a condition adjustment, ) then I agree, an unadjusted REO can lead to over valuation.

But in a declining market, or one with ongoing heavy REO inventory, or a market with intrinsic adverse problems that likely will have long term REO and abandoned properties, then adjusting an REO up can lead to over valuation.

 

[J Grant]

In some markets, or for a period of time, investors are typical buyers, or one of a group of typical buyers.

Today's investor is tomorrow's property flipper...how come you defenders of Traditional sale MV , how come you have no trouble with former investor now turned flipper as a seller?

When they bought low, the sale was REO, atypical motivation, bifurcated, investment value, yada yada...but when the same investor takes the property and flips it and sells high, suddenly everything about the sale is typical? What happened to the adjustment to the typical traditional sale you were eager to make when it was an REO?

 

[residentialguy]

But in a declining market, or one with ongoing heavy REO inventory, or a market with intrinsic adverse problems that likely will have long term REO and abandoned properties, then adjusting an REO up can lead to over valuation.

No it can't. If you are basing your report on sales without undue stimulus and all the other conditions of MV, the report will reflect MV. How do all these investors in a straight up sale sell over market value (adjusting for superior condition, if needed)? That's ridiculous. They need to move it quickly...if anything they price it aggressively for a quick sale and might warrant an upward adjustment to reflect what they would have had with adequate market exposure.

 

[JSmith43]

They need to move it quickly...if anything they price it aggressively for a quick sale and might warrant an upward adjustment to reflect what they would have had with adequate market exposure.

Correct as usual, MNGuy.



Jgrant, a flipper is not a too big to fail bank that can act as if their great financial ship doesn't sink a bit every time they take an imprudent risk.

Chat with a legal flipper if you get a chance. They renovate those properties at the speed of light so as to get them on the market & avoid market risk. Amateur flippers (ask Rex about his flip experience) probably are not set up to turn the properties as quickly-they may have to shop & wait for subcontractors, etc.

Lots of professional flippers were caught with inventory in 2010 when the homebuyer tax credit didn't get a 3rd extension. Didn't you notice?

In general, legal flips tend to sell for more than REO, all else equal, but less than an equally well staged & marketed Traditional sale. Of course, it varies one transaction to another. The flips are typically much closer to MV because the flippers are better at reading the market and "polishing the apple" on average, than a REO asset manager.

A flip and a relocation due to job transfer both strive for MV & some get lucky, but, on average, fall a bit short. That's been my observation.

 

[Randolph Kinney]

How do all these investors in a straight up sale sell over market value (adjusting for superior condition, if needed)? That's ridiculous. They need to move it quickly...if anything they price it aggressively for a quick sale and might warrant an upward adjustment to reflect what they would have had with adequate market exposure.

I was wondering, how do your square the above with your data that you posted in post 232 about your JORDAN 40 sales?

You told us that 2915 Fremont Ave N was a contract for deed sale. It had 312 cumulative days on market.

However, you told us that the other 5 non-REO, non-short sales were investor flip sales.

Did you not notice that 2731 Knox Ave N has 397 days on market?

Did you not notice that 2951 Colfax Ave N has 190 days on market?

That leaves 3 investor flip sales with 39 cumulative days on market or less.

How does that work with - They need to move it quickly.

 

[Terrel L. Shields]

Terrel, what about the obligation to deliver credible assignment results?

Do you retrospective your effective date to 2002, since you are reporting market conditions a decade old ?

Who said anything about retro'ing...I'm saying you did not adjust for REOs 10 years ago...you considered the "CONDITIONS OF SALE" to be non-arm's lenght didn't you? Suddenly those sales are now "arm's length".???

But in a declining market, or one with ongoing heavy REO inventory, or a market with intrinsic adverse problems that likely will have long term REO and abandoned properties, then adjusting an REO up can lead to over valuation

rarely...very very rarely.... Michael Feder's point at RadarLogic. If a nationwide firm can tell the difference in 20 major MSAs and is paid tens of thousands to do so....then surely you can see that "on the ground" here. I aver no market is going to have arm's length sales of owner occupied homes that average less than REO pricing.... That was Feder's point on Bloomberg. Once they approach those prices, the vultures - cash investors - back off. It won't pencil out for their investment demands (8% return or so) as a rental...

I continue to plot sales in uniform subdivisions and I see the bifrucated market. So what is that market? The cheap seats are being bought up by LLCs, known landlords, etc. The new name...the one not seen in public records and sold from private party to private party...they are the undistorted market values. The rest are Investor sales and usually involve a short or REO sale... The price differential is obvious. The fact that a few will overlap from REO to ARM LENGTH does not change that metric.