REO sales and "Market Value"

[Randolph Kinney]

That's nice, but I never said I used Jordan.

All yours sales came from JORDAN, JORDAN is the neighborhood.

Nice try, you did not present the whole picture of the neighborhood. And then you make bogus claims about the neighborhood.

Really, have you read the APB Valuation Advisory #3 lately? Apparently not. :new_2gunsfiring_v1:

 

[Randolph Kinney]

That's nice...we went over that already.

I see you changed the message from what you posted.

But that's oaky, you fooled yourself believing that you have explained that.

We all know that you won't present the whole data set on the JORDAN neighborhood. We all know that you operate on claiming it so, makes it so as if you really did.

You did not answer who is buying those REOs; are they all sales to investors?

 

[residentialguy]

But that's oaky, you fooled yourself believing that you have explained that.

We all know that you won't present the whole data set on the JORDAN neighborhood.

Are you really an appraiser? You let the city tell you what your neighborhood boundaries are for you subject?
Wow!

I have some neighoborhoods that consist of a portion of a small subdivision. In fact I've had them consist of a short cul-de-sac.

Now you want me to go into the listings and also look up all the buyers of all the sales? Wow...I wouldn't if I had the time. I've got a family and a life. Sad that you don't.

I'd love to put meaning to your life, but our conversation is now over.

 

[Ms. Janet]

When I started appraising...and Hector was a Pup (1979) market value was defined by the AIREA and the SREA as:

"The highest price in terms of money which a property will bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably, and assuming the price is not affected by undue stimulus.
"Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1) buyer and seller are typically motivated
2) both parties are well informed or well advised, and each acting in what he considers his own best interest
3) a reasonable time is allowed for exposure in the open market
4) payment is made in cash or its equivalent
5) financing, if any, is on terms generally available in the community at the specified date and typical for the property type in its locale
6) the price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction."

 

[Randolph Kinney]

I have some neighoborhoods that consist of a portion of a small subdivision. In fact I've had them consist of a short cul-de-sac.

Res, why don't you seek out a Realtor that knows the JORDAN neighborhood to help you generate the statistics for what sold versus what is listed? :icon_idea: Maybe that Realtor can help you discover who the buyers are of REO MLS listed properties in the JORDAN neighborhood and who the sellers are of non-REO, non-short sale properties. Really, the task is beyond your capabilities as an appraiser.

 

[JSmith43]

MS Janet, Thanks for digging up that old definition. Sounds right. I know I have it here somewhere, printed on fan folded Forms & Worms pin fed appraisal forms.

In my mind, I can hear the Epson 8 pin printer cranking out a report.

 

[DMZwerg]

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.

Drive? Yes.
Become? No.

I think we can all agree on 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 agree with you up to the word "report". If you had stopped there you would have been fine, but you went on and added your opinion, then went on to give a second opinion after the "and" which is clearly in contrast and opposition to what AI Guidenote 11 point stated point blank.

My understanding (and supported by Guidenote 11) is that:

REOs are not direct comparables under the standard definitions of Market Value (FIRREA, etc.) as they are always distressed sales (as defined by the Appraisal Institute). My comment: They could be for Disposition Value or Liquidation Value, just not for Market Value.

Distressed sales always require an adjustment. My comment: adjustment may be zero. They also require analysis. If no adjustment is made a comment *MUST* be included explaining the lack of adjustment.
​

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.

Mine opinion has (although my approach has not). I used to state that to include REOs one must "analyze, comment OR adjust" and after reading various AI and other sources I discovered I was slightly mistaken and the actual usage requires "analysis, comment AND adjust".

 

[DMZwerg]

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.

How about pulling in the context where they reveal the "ifs"?

So, is the VA a bank?
If so then I know of one possible situation where a "bank" is typically motivated, aka military housing (all sales are relocations, and the VA financing covers most if not all purchases including "foreclosures", "short sales", and in fact basically all financing no matter what the "situation". So, given that can occur the AI would have been putting their foot in their mouth if they had not mentioned a possible exception when on military housing the VA can be "typically motivated" even when dealing with REOs.

Heck, I have been stating for 3 years that there are some rare cases where an REO *may* entail a typically motivated seller. Problem is the typical Skippy figures then their market must be the exception instead of actually doing due diligence and researching REO seller motivations, and thus have been low-balling values like crazy.

So, if you *THINK* your market is proof that they can be the same then *WHAT* is actually going on in your market?
Is it in freefall (like Las Vegas was)? In that case ALL sales could be distressed sales. Funny how some appraisers say that REOs can "be the market" and yet can not recognize that all sales in the local market could be distressed sales (condition of sales / seller motivation / undue stimulus) and thus no sale on the market meet the FIRREA DoMV.


Brass Tacks: The AI said what it did and the way it did to prevent the document from being used to straight-jacket the industry. The reason is that appraisers don't just appraise using the FIRREA definition but under a multitude of definitions of value including Disposition, Liquidation and at least a dozen more being the most commonly used after Market Value (FIRREA or equiv).

 

[George Hatch]

You only wish it was just the one letter and just the AI. TAF has made similar comments in *official correspondence* to a couple of the wayward state legislatures, too. For example, this one from last year:

March 25, 2011
Jim Park
Executive Director
Appraisal Subcommittee
1401 H Street N.W. Suite 760
Washington, D.C. 20005

Via Electronic Mail: jim@ASC.gov


Dear Mr. Park:

There are many appraisal assignments where, in order to achieve credible results, it is necessary to use “distress” (e.g. REO or Short Sales) properties as comparable sales. However, foreclosure sales, defined by Black’s Law Dictionary as “the sale of mortgaged property, authorized by a court decree or a power-of-sale clause, to satisfy the debt” are seldom based on market expectations. When there is a glut of distress sales in the marketplace, and those properties are truly comparable to the subject, it would be misleading not to use them as part (or in some cases all) of the basis for a value conclusion.

Standards Rule 1-4(a) of the Uniform Standards of Professional Appraisal Practice (USPAP) requires, when necessary for credible results, that the appraiser “analyze such comparable sales data as are available to indicate a value conclusion.” To overlook a relevant segment of that data would be contrary to what is required by USPAP.

Furthermore, appraisal theory provides that the principle of substitution dictates that buyers will not pay more for a property than the price of an equivalent substitute property. Therefore, the value of a property is limited by its competition. If the pool of competitive properties includes enough distress properties, those properties will, in effect, establish a value ceiling.

It is our opinion that the proposed legislation could conflict with USPAP. If an appraiser were to perform as required by the proposed legislation, there would likely be many cases where the appraiser’s results were not credible.

Lastly, we believe that the proposed legislation clearly would not establish a jurisdictional exception under USPAP for any appraisals performed for federally related financial transactions.

Lines 436-437 in the Comment to the JURISDICTIONAL EXCEPTION RULE state:
When compliance with USPAP is required by federal law or regulation, no part of USPAP can be voided by a law or regulation of a state or local jurisdiction.


Although the language quoted above does not necessarily apply to appraisals for non-federally related financial transactions, it would be inconsistent with the spirit and intent of USPAP to prohibit such practices for one type of transaction but allow them for another.

We hope you find this helpful. If you have any questions or need additional clarification, please feel free to contact us.

Sincerely,

J. Carl Schultz, Jr.
Chair
Appraisal Standards Board

My bolds (obviously).


It is apparent that both the TAFs opinion as well as the AIs opinion is that these sales can be considered directly indicative of MV in at least *some* these assignments. You guys can disagree based on a value definition we haven't used for these assignments in over 25 years but you can't disagree with them in one breath and say you agree with them in the next. Well, you can and have been doing that but it hasn't been working in your favor credibility-wise.

It should be clear to all of you by now that your opposition in this discussion isn't limited to a few appraisers in this forum - you're bucking entities whom I would argue trump *any other references* that are currently at your disposal. The reason for that is because they are both authoritative appraisal oriented entities , not banking oriented or realty brokerage oriented. You can argue that they're wrong or they worded their letters poorly or that the letters weren't addressed to you as an individual so therefore you can do it your own way, but you can't argue that your opinions are entirely consistent with their stated position.

And make no mistake, neither of the signatories to these two letters can be construed as acting as a single individual expressing a personal opinion. Both signatories are clearly acting in their respective roles as the official spokespersons for those entities and both refer to the orgthey represent and not themselves as the basis of those opinions.

 

[George Hatch]

How about pulling in the context where they reveal the "ifs"?

So, is the VA a bank?
If so then I know of one possible situation where a "bank" is typically motivated, aka military housing (all sales are relocations, and the VA financing covers most if not all purchases including "foreclosures", "short sales", and in fact basically all financing no matter what the "situation". So, given that can occur the AI would have been putting their foot in their mouth if they had not mentioned a possible exception when on military housing the VA can be "typically motivated" even when dealing with REOs.

Heck, I have been stating for 3 years that there are some rare cases where an REO *may* entail a typically motivated seller. Problem is the typical Skippy figures then their market must be the exception instead of actually doing due diligence and researching REO seller motivations, and thus have been low-balling values like crazy.

So, if you *THINK* your market is proof that they can be the same then *WHAT* is actually going on in your market?
Is it in freefall (like Las Vegas was)? In that case ALL sales could be distressed sales. Funny how some appraisers say that REOs can "be the market" and yet can not recognize that all sales in the local market could be distressed sales (condition of sales / seller motivation / undue stimulus) and thus no sale on the market meet the FIRREA DoMV.


Brass Tacks: The AI said what it did and the way it did to prevent the document from being used to straight-jacket the industry. The reason is that appraisers don't just appraise using the FIRREA definition but under a multitude of definitions of value including Disposition, Liquidation and at least a dozen more being the most commonly used after Market Value (FIRREA or equiv).

You're shooting for the strawman argument. Poorly.

Nobody has said that distressed sales (of any type) are always directly indicative of the MV. All your fretting about our donkeys getting the wrong idea is a tangent and irrelevant to any discussion that is, at it's heart, about concepts, principles and applications. All the fretting ResGuy was previously doing about protecting the American Homeowner's equity is likewise a tangent.

I mean, if we want to bias the market (which I do not advocate) there is arguably a safer side of that line to walk. As a practical matter telling our donkeys to - no matter what - go wherever they need to go to find the traditional sale to support the presumably higher value poses a much greater threat to safety/soundness at the lender level. A deal not made may represent a lost opportunity but a deal that shouldn't have been made can and has led to horrendous actual losses of principal. Losses for which the effects are not limited to some bankster's bottom line. Our history has already demonstrated that fact in vivid detail.