REO sales and "Market Value"

[J Grant]

The MV definition is a set of presumed sale terms for the SUBJECT, where the subject is assumed to be sold per those terms on the effective date, and the actual sales terms of the comps, which may differ in various regards, are adjusted.

The MV definition was not meant to vet each sale to see if it meets the definition.

For example, a sale may have concessions. If we want to use that sale as a comp, we adjust the impact, if any, of the concessions on price to the MV presumed sale terms of the subject (which states not impacted by concessions)

Likewise, if a sale had distress seller motivation that impacted price, (such as an REO) we can adjust it, if the impact is measurable, to the non duress sale MV def presumed sale terms of the subject.

The MV def is a set of presumed terms to adjust comps, but the definition does not imply it is meant for pre screening of sales to see if they are MV.

Therefore, arguing whether or not one should use sales because they don't meet the definition of MV is actually not the correct application .

There are standards where it is instructed of appraisers not to use comps, such as non arms length when relationships between parties impact price, or properties sold under conditios of sale or in marketing times atypical for market (Such as sheriff's sales, or sales with a 5 day sealed bid time, for example)

 

[George Hatch]

What do we call it when a seller is acting in what they perceive to be their own best interests?

Why don't you make up your mind? First you're saying they're oh-so-compelled and now they're holding inventory because it in their own best interests. Well, which is it?

Pick one.


Instead of reading elements that are otherwise unstated into the definition how about judging the motivations of these sellers based on what they're actually doing IRL.

 

[PropertyEconomics]

The MV definition is a set of presumed sale terms for the SUBJECT, where the subject is assumed to be sold per those terms on the effective date, and the actual sales terms of the comps, which may differ in various regards, are adjusted.

The MV definition was not meant to vet each sale to see if it meets the definition.

For example, a sale may have concessions. If we want to use that sale as a comp, we adjust the impact, if any, of the concessions on price to the MV presumed sale terms of the subject (which states not impacted by concessions)

Likewise, if a sale had distress seller motivation that impacted price, (such as an REO) we can adjust it, if the impact is measurable, to the non duress sale MV def presumed sale terms of the subject.

The MV def is a set of presumed terms to adjust comps, but the definition does not imply it is meant for pre screening of sales to see if they are MV.

Therefore, arguing whether or not one should use sales because they don't meet the definition of MV is actually not the correct application .

There are standards where it is instructed of appraisers not to use comps, such as non arms length when relationships between parties impact price, or properties sold under conditios of sale or in marketing times atypical for market (Such as sheriff's sales, or sales with a 5 day sealed bid time, for example)

JGrant .. you couldnt be more wrong in your assertion that every sale is not "vetted" against the definition and then in fact you show exactly how the are "vetted" .... perhaps you are just confused but this posting would suggest an appraiser that simply does not understand the appraisal process at all and in particular selection of COMPARABLE properties, how they are adjusted, AND how the definition of VALUE (whatever it may be) rules in both selection and adjustment of those comparable properties .....

:Eyecrazy:

 

[J Grant]

PE, we vet the sales of course when we choose which ones we feel make the best subsitute properties for our comps...and then of coursre we further vet them when we adjust their terms of sale and condition of sale to the MV def terms, and then the physical condition or amenities to the subject line items on grid.

What I meant was, is that some appraisers first "vet" each sale for MV, before deciding to use. They only choose sales they feel are "MV sales." But, we don't know what the MV is, till we develop our appraisal!

Therefore, how can we reject a sale for not being "market value?" We may feel a sale sold at a high or low end of the spectrum, and is an outlier, or that it's price is too high or low to make it a comp, because it sold for high or low due to features or location too dis similar to our subject.

But, we are developing the appraisal to opine MV for our subject by adjusting the comps...how can we do this, when we first "vet" our sales to see if they sold for "market value"? Because the whole purpose of our doing the appraisal is to find out market value for the subject. Since market value is the unknown, how can we pre screen our sales for it? The sales are selected for certain attributes in common with, or comparable to, the subject, to develop a market value opinion for the subject.

 

[residentialguy]

What do we call it when a seller is acting in what they perceive to be their own best interests?

George a distressed seller selling out of necessity is acting in their own best interests. It's do this, or else. It is high compulsion. Holding off sales that they have to sell only makes the few that they put on the market even higher motivated.

"Market value results when the parties are typically motivated, are generally well informed, and are acting in their best interest"

If they are not typically motivated, or if they are not well informed, or if they were not acting in their best interest, then the sale ceases to reflect the conditions of market value.

​

 

[residentialguy]

PE, we vet the sales of course when we choose which ones we feel make the best subsitute properties for our comps...and then of coursre we further vet them when we adjust their terms of sale and condition of sale to the MV def terms, and then the physical condition or amenities to the subject line items on grid.

What I meant was, is that some appraisers first "vet" each sale for MV, before deciding to use. They only choose sales they feel are "MV sales." But, we don't know what the MV is, till we develop our appraisal!

Therefore, how can we reject a sale for not being "market value?" We may feel a sale sold at a high or low end of the spectrum, and is an outlier, or that it's price is too high or low to make it a comp, because it sold for high or low due to features or location too dis similar to our subject.

But, we are developing the appraisal to opine MV for our subject by adjusting the comps...how can we do this, when we first "vet" our sales to see if they sold for "market value"? Because the whole purpose of our doing the appraisal is to find out market value for the subject. Since market value is the unknown, how can we pre screen our sales for it? The sales are selected for certain attributes in common with, or comparable to, the subject, to develop a market value opinion for the subject.

Maybe you need to revisit AI's "Distressed Sales as Comparables" and their blatant lack of enthusiasm of even suggesting their use.

"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.)"​

I've heard the argument from you and your twin brother that that the flavor of the day sets what is typical. Whatever is predominant (for God only knows what time frame or percentage that entails), it becomes the new Miss Typical Seller. How does AI view atypical? What example did they give to show atypical? ah yes.... "atypical seller motivations e.g., a highly motivated seller" Therefore, a typically motivated seller is one that is not a highly motivated seller.

Typical is not a moving definition. Typical motivation is a standard that means there is no high motivation.

 

[J Grant]

The AI contradicts itself, because it recomends the use of REO or short sales when including them lead to credible assignment results. They did a poor job imo of linking atypical motivation and a highly motivated seller...if highly motivated sellers are predominant in a market, and the properties they are selling are competition for the subject, then a buyer might compare the two for purchase , and a seller of a non REO might have to become as motivated to sell as the lender, in order to compete.

Once again, it all comes back to the subject property. If your subject has enough buyers in the market that are not motivated to buy REO's , and will pay more for a home that is private owner sold, then there should be ample private owner sales to use as comps, and or a clear adjustment would be seen for an REO, if you do use one as a comp.

 

[KenAZ]

What I have found is that if the market is REO driven, there is very little if any value difference between REO, Short Sales or Standard sales that are in average condition.

All of this discussion on the definition of MV would be resolved if appraisers determined the value of the subject as if it were an REO.

 

[Randolph Kinney]

In the second quarter of 2012, there were 13,931 home sales in the San Diego area. Of these, 34% were foreclosure sales — well above the national rate of 22.8%. The average foreclosed home sold at a 29.5% discount. Although home prices have declined by 39.6% since reaching peak value in the first quarter of 2006, the area’s housing market remains especially expensive. In the first quarter of 2012, the median home price in San Diego was 5.1 times the median family income, almost twice as much as the national figure of 2.6 times income. Even foreclosed homes are quite costly: a home that has been repossessed cost an average of $307,538 in the second quarter of 2012, more than $50,000 above the average price of nonforeclosed homes sold in the United States.

Silicon Valley's Boom Creates Shortage of $1 Million Homes

http://www.cnbc.com/id/48817807

Homeownership Falls Despite Affordable Mortgage Rates

There are actually two reports regarding the current homeownership levels, each with slightly different numbers. According to U.S. Census Bureau, homeownership fell to 65.5% which includes 3.8 million homeowners who are 90 days or more late on their mortgage payments.


Distressed Home Prices Jump With Inventory Shrinking

http://www.bloomberg.com/news/2012-...-jump-with-inventory-shrinking-mortgages.html

Demand for distressed properties is driving up prices for the first time in two years as investors from Blackstone Group LP (BX) to Colony Capital LLC chase shrinking inventory.

The average sales price on homes in the process of foreclosure or already owned by banks rose 7 percent in the second quarter from a year earlier, the biggest annual increase since 2006, RealtyTrac Inc. reported today. The number of those deals dropped 22 percent, the most since 2010, the Irvine, California-based data provider said in a statement.

Investors are taking advantage of home prices that are about 31 percent below the 2006 peak and growing demand for rentals from people with damaged credit, limited savings or lack of confidence in owning a house. Firms including Blackstone, Colony and Oaktree Capital Group LLC (OAK) plan to spend about $8 billion buying single-family homes to rent, according to company statements and interviews.

 

[residentialguy]

The AI contradicts itself, because it recomends the use of REO or short sales when including them lead to credible assignment results.

No, they do not. They go on to say:

"When it is necessary to use a distressed sale as a comp, the appraiser must carefully analyze the current local market to determine if an adjustment for conditions of sale is needed. If no adjustment is warranted, the lack of adjustment should be explained. "

"The level of investigation needed to meet the requirement for sufficient diligence is generally more than is needed in nondistressed market situations. Further, supporting such adjustments can be particularly challenging when there are few current transactions to analyze. Competency in performing such investigation and analysis are required."