REO sales and "Market Value"

[George Hatch]

The original question was whether REOs could ever drive the market and even become the market. If we've now come to an agreement that both are possible under certain circumstances then that question has been resolved and there's no reason to argue about that.

If we have also come to an agreement that a professional appraiser should consider all the sales data first before forming an opinion about whether REOs and shorts should be included in their report as direct comparables and whether or not the use of those sales will require adjustments then there's no reason to argue that.


I haven't changed my opinion or my approach to these issues one iota since *before* they first come under discussion in this forum. That's a fact. My opinion about what can and cannot comprise "typical" works exactly the same that it's worked since the last RE bust I worked through 20 years ago. Moreover, I use the same approach and criteria during the booms that I use during the busts - it makes no difference to me which direction the market is going or which hand is holding the whip.


Readers can decide for themselves whether their opinions on this issue have changed in the interim or alternatively they can remember their own history in whatever manner they think they need to - it makes no difference to me. I'm quite satisfied to settle for those elements upon which we now apparently agree.

 

[J Grant]

My opinion about what can and cannot comprise "typical" works exactly the same that it's worked since the last RE bust I worked through 20 years ago. Moreover, I use the same approach and criteria during the booms that I use during the busts - it makes no difference to me which direction the market is going or which hand is holding the whip

Exactly. The MV definition is neutral. It does not care whether prices are in decline, rising, or stable. It does not care if your subject is a 50k two bedroom home or a 5 million mansion, nor does it care about who owns the home. The MV definition is a set of presumed sales terms from which to make adjustments of your comps to the subject. The application is not supposed to change report to report, (assuming we use the same definition report to report).

Thus, whatever the market conditions are, or the $ range of the subject, I don't have to change methodlogy, and that inlcludes whether my subject is REO owned or owned by a CEO.

 

[residentialguy]

The original question was whether REOs could ever drive the market and even become the market.

No one here has argued that REOs can't drive the market. Anything can drive the market. And no one here says that it can be the only thing selling...I just posted a neighborhood market is virtually all REOs. They weren't market value sales, their condition of sale was that of a disposition and liquidation sale. The price may be the same as a house that conform to market value...you can put lipstick on a pig....but...well, you know the rest

 

[George Hatch]

A sale of a bank-owned property might have involved typical motivations

There it is in black and white (and red and blue, too). You either agree with them when they say that or you don't. Pick one.

 

[JSmith43]

Jgrant, the "former" MV definition was mandated by FIRREA legislation of 1989.

The effective date for requiring the new definition in FIRREA was Fall of 1990.

There was no word PROBABLE in the prior definition. I know. I appraised back then.

You keep spouting out Most Probable Price and stop there, pretending there are no set of idealized conditions that follow. That would be fine, if Ratcliff had his way, but he didn't. There are namby pamby jackwagon provisions in the definition of MV that we are stuck with using.

Various court decisions influenced the current provisions in the definition of market value that are idealized conditions, to be sure. So when you end up in court it might be wise to respect what the courts were trying to accomplish. It has elements of social justice and "fairness", because they did not go the Ratcliff way.

Does anyone have a copy of the old MV definition from the pre-URAR form set handy to post?

 

[Mile High Trout]

Disclosure or not is one thing, *RISK* is what causes the difference. When a non-foreclosed property did not have fair disclosure the buyer has a better chance of successfully reclaiming all or a portion of their loss. Whe the property is a foreclosure there is less recourse as the buyer is assumed to be assuming the risk (thus sale price consistent with disposition value rather than (FIRREA) Market Value).

That is interesting and insightful, thank you.

Still though, you really can't 'monetize risk related to disclosure'.

One can quite easily observe the differences between apparently similar houses where the seller is as you say; forced to sell. That's a vital point related to my argument of 'practical availability', where I think we both agree. When you're forced to sell, the market climate may be more bearish. It's obvious that's the intention of the seller though, and much less probable to be an indication of monetized risk vs reward in real market pricing.

Nope, I'm still of the opinion fraud is so commonplace, it's everyday process. They flop them left and right, because they want em off the books. It's the big shakeup, and now every private investor and their mother is funding huge capital reserves for an increasing volume of flippers. On the positive side though, when an investor grabs a flop and flips it back under previous market, that allows for better longer term affordability for the purchaser. So it's give and take.
___________
The hits keep on coming, some of you guys need to be more productive and less bull headed. If you're not the constant student, you don't learn anything.

 

[Randolph Kinney]

LOL...the listing wasn't being truthful. 2731 Knox was a REO. It had special financing (20k grant) that affected the price. Sorry Randolph, I know that's going to leave toe jam in your mouth. :laugh:

So you posted bogus data?

2731 Knox Ave N, according to your posted data this sale has $495 of seller concessions, nothing about special financing.

As for "was a REO", lets look at the public record:

When does being a REO, stop being a REO? How about over 3 years later, fixed up ready for market. :new_2gunsfiring_v1:

As far as flips priced aggressively, that was a general statement for professional investors. You'll always have a few newbies that that don't know the rules and bought a house after watching "flip that house"

But for the investor, if they aren't living in it, time is money. It's typically priced aggressively.

So the 5 investor flips turn out to be really 3 professional investor flips with 2 investors being novices, judging from the days on market.

Price is one thing, time on market is another.


You have identified 29 REO sales in the past 12 months. Are professional flippers buying these or are the novice flippers buying these?


Why haven't these 29 REO sales showed up in your 40 sales data as flip sales? What happen to them? Did owner-users buy them? Or were they bought by investors, fixed up and put on market to be rented ?

The reason why I question your data is because it does not make sense for what you have identified and then you make bogus assertions.

 

[J Grant]

JSmith, The only reason I stop after "most probable," is that the MV def is long, and do I have to post the entire definition ? I assume appraisers know it. And yes, there are a set of conditions that is part of the definition (presumed sale terms)

I would stop at calling them "idealized" conditions, they are a set of sale condiitons that are assumed to be as neutral as possible, so that we can adjust the less than ideal, or real world/not neutral terms of acutal sales to the MV def standards.

The difference is that some apprisers get stuck on one part of the def, the undue stimulus, for example. Yes, that can be adjusted for, so why not use the sales, if relevant, and adjust for any distress aspects (if warranted). Yet we have posters swearing that less than perfect sales (REO or short sale) should only be used in the most dire extreme circumstances, such as when there are no other comps, or they comprise virtually 100% of the comps.

These posters ignore other caveats of the MV def...such as an open and competitive market...if REO and short sales are part of the open and competitive market appealing to buyers, how can you marginalize them? Ditto for well informed and knoweldgeable buyers and sellers acting in their own best intrests. IF a buyer buys an almost identical home to another buyer and pays 20k less because they bought it as an REO, who is the more well informed and prudent buyer?

The buyer who paid more might have been misled by a realtor, for example, who told them that REO homes "aren't as good" (?? when it is the same model house"), and pushed the overpriced house owned by a neighbor because it was the agent'sr listing and they'd make the full comission. That is just one example, but the point is, there are always different buyers, sellers , market conditons and price points and motivations present in any market, and appraisers should treat each assignment individually, not with a rigid set of preconceived notions about certain sale types.

 

[Randolph Kinney]

No one here has argued that REOs can't drive the market. Anything can drive the market. And no one here says that it can be the only thing selling...I just posted a neighborhood market is virtually all REOs. They weren't market value sales, their condition of sale was that of a disposition and liquidation sale. The price may be the same as a house that conform to market value...you can put lipstick on a pig....but...well, you know the rest

Lets look at that bogus data again. You identified 2951 Colfax Ave N as an investor flip sale.

According to the public record:

Res, the public record indicates 1.5 years between current sale and previous sale, both are arms length - not REO.

This fits the definition of a "regular sale", something you assert never happened in that neighborhood in the past 12 months, besides the contract for deed sale 2915 Fremont Ave N.

You have 29 out of 40 sales identified as REO sales = 72.5%, not even close to being virtually all.

 

[residentialguy]

So you posted bogus data?

2731 Knox Ave N, according to your posted data this sale has $495 of seller concessions, nothing about special financing.

As for "was a REO", lets look at the public record:


The reason why I question your data is because it does not make sense for what you have identified and then you make bogus assertions.

The house was Owned by Greater Metro Housing Corp. I don't care if you want to call it a flip or a Corportation owned. I've stood my assertions with more facts than you ever hoped I could... you're just making a fool out of yourself.