REO sales and "Market Value"

[J Grant]

Res Guy, the AI stated that in a letter to defeat the Neveda Legislator push to ban REO sales from MV reports.

Your post above from the AI provides excellent guidance on use of REO or short sales as comps.

 

[J Grant]

"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.​

When the above is true, sale conditions that do not reflect MV terms can be adjusted to the MV presumed sale terms for subject. OR they are not well informed Or not acting in their own best interset, there is a double standard with the "REO are not good comps " crowd. Appraisers are quick to exclude an REO as a comp for not reflecting MV conditions, but have no problem using an over market flip sale, or builder sale, or a multi bid high sale of a home. Do you think a buyer caught up in a bidding war who overpays by 20k just to beat out another buyer, is acting prudently and in their own best interest? Are they well informed of the consequences (over paying) of "winning" a bidding war? Where is the adjustment for that condition of sale? ​

The "winner" of the bid war who over pays is likely to default later if they can't sell for what bought the house for, creating yet another REO property. REO properties have a history, and the history starts with the owner over paying at some point, (or over borrowing, in the case of a target high $ refi ),

Appraisers need to recognize the fact that high prices that spiral away from real income to support the mortgage payments, are the first step in a later chain of events that often lead to defaults. These appraisers need to recognize the history of the REO and short sale properties in their market areas. Their knee jerk answer often is, " REO's are there not becuase the buyer overpaid, but because the market declined!" Well, why did the market decline? Because home prices went so ustainably high, that there was nobody left to pay more for them. The owner's could not sell them for even the mortgage amount. REO's and short sales are related to buyers or owners over borrowering for property. When the "winner" of a bid war puts 10% down on the highest price bid, they are over borrowing....doubtful they'd pay 20k more to beat out the other guy, if the 20k had to be paid in cash. ​

 

[residentialguy]

There are no double standards. I look at all sales. Sellers all have different degrees of motivations. AI says to investigate the motivations. I do that...however, an appraiser can't with REOs. I do know it's high. And I do know that they have a red bulls-eye on their chest for all buyers to see. A big neon sign saying "Distressed seller here". "When it is necessary to use a distressed sale as a comp", I will. They typically need adjustment. You may run into a situation where an adjustment isn't necessary. But that is so uncommon that the AI say that you better explain yourself.

 

[J Grant]

Sorry Res Guy, you talk a good game in your last post, but in general, the same appraisers who are adverse to considering use of REO comps, rarely, if ever, question a flip sale or high bidding war sale being MV. ( If they particpate in a thread on the topic, they defend the high $ builder /bid war/flip sale as MV because a buyer wanted to pay, or because it represents a "meeting of the minds".

Some builder, hgh bid, or flip sales can be MV , but others need adjustments for conditon of sale or be looked at for lack of well informed or prudent actions on the buyer side.

If appraisers are going to be stringentabout vetting REO and short sales, then be equally stringent about vetting other non traditional sale types. Instead of making charts that show REO's sell below market, make other data charts...that might show flip sales sell above market, or high price builder sales show a greater % of defaults several years out, for example.

 

[J Grant]

Sellers all have different degrees of motivations. AI says to investigate the motivations

AI, and the MV definition, asks not just that the appraiser investigate seller motivations, appraisers are also supposed to look at buyer motivations, esp as the principle of substitution applied in comp selection, as well as considering if the buyer actions indicate they were well informed, acting prudently, and in their own best interest.
Those adverse to considering REO or short sales, focus on the seller motivation aspect, while ignoring or taking only a cursory look at vetting if the buyer meets the MV def of being well informed and acting prudently. Is a buyer who spent borrowed money to win a bid war and paid the highest price in area acting prudently? Do these appraisers even ask the question?

 

[JSmith43]

The "chaffinator" strikes again! Another thread polluted beyond measure.

 

[J Grant]

JSmith, you sound like a grade shool kid, calling names. Why don't you point out in a supported manor why my post was "polluted"...because it questioned the fact that some appraisers never vet high bid war sales.?

I doubt you are capable of putting forth any reasonable or supported answer, name calling seems more your style.

 

[residentialguy]

JG, now you're just fabricating stories. No one here is defending some bidding war.

 

[J Grant]

I am not fabricating stories... I am using examples from real life market scenarios. Read back on your prior posts in various threads where you jump in to defend high SC prices, for example...

 

[J Grant]

The point I was trying to make, which JSmith missed , is that if the same posters who post vociferously about how REO sales can never be MV, also posted about vetting other atypical sales types, and explored the rest of meeting the MV definition, such as buyer actions, then their REO posts would make sense. But they are only concerned about one type of atypical market activity, and one type of atypical sale prices (the low end). High priced flips, builder sales, and bid war SC prices are defended on many threads by these same posters as being MV.