REO sales and "Market Value"

[George Hatch]

Normally that's my preference, too.

As far as making a market conditions adjustment for a "non-REO" sale that actually bucks the trend I can see the reasoning in the abstract but I probably wouldn't do it myself. I prefer to let the atypical sale just sit there by itself, isolated from the rest of the activity in the grid. Either that or simply discard it as an outlier and refer to it in a one-liner explaining why.

 

[DMZwerg]

Now...you find out the one priced at $200,000 is a bank owned property? Do you really care? Remember the properties are identical. So, you enter into a contract to buy it. What is it's value?

Yes I care. There was an article in the local paper about a couple that purchased an OREO for cash then lost the house to bank foreclosure without ever taking out a mortgage. The risk is just too high of title issues with OREOs, given robo-signing and so forth, and that is on top of lack of RECRs and so forth. Locally that tends to devalue OREOS by 25%+ and most typical buyers looking for 50%+ off of OREOs. Only exception appears to be HomePath that tend to only suffer 10% at most (if any depending on the NBHD) with stigma appearing mostly in more upscale NBHDs (in the worst NBHDs they seem to sell for a premium at times).

So, that $200k appears overvalued to local typical buyers in my neck of the woods by $30k-$75k (if in otherwise good condition then closer to the $30k, if not then could exceed $75k overprice).

See, most local buyers remember reading the same article I did, unless they don't get the local paper, as it was a running story over months.

 

[residentialguy]

I wouldn't make an adjustment, just consider it during the reconciliation of the SCA.

Qualitative weight in reconciliation is not a bad way of doing it. It depends on what kind of market data you have. You're not finding liquidation value or some other type of distressed value, you're finding market value with no undue stimulus affecting the price.

 

[George Hatch]

LOL "Undue" is relational. Undue in BFE may be a little different than undue in the big city. All real estate is local.

True story - I just got finished with an appraisal this week on a residence where exactly half my sales data were REOs and half weren't. No indications among them that seller identity was of any effect on the value at all. The "private" sellers didn't earn an extra dime in their role and the REO buyers didn't pay a dime less for their decisions.

 

[Joyce Potts]

Offhand I'd say there's at least some possibility that this is not the typical manner of exposure for most sales in the market. If so, the resulting contract price may be more reflective of a liquidation value rather than Market Value as defined in the GSE programs. You do have an arbitrarily limited exposure time as well as an arbitrary limitation on who can buy. We're definitely not allowing the market to run its course here.

And yeah, I do more than one value opinion in an appraisal report when appropriate, sometimes without even asking the client. Appraisers always retain the right to add to a SOW decision when necessary. Clients can tell me what their minimum expectations are but they can't tell me how far I can go beyond that.

As far as I'm concerned the old rules have changed dramatically and that's seems to be the most difficult mindset for many to grasp. In my market it's typical to see sales of both 'distressed' AND 'arm's-length' properties sell in under 10 days. It usually has NOTHING to do with exposure time, but everything to do with the limited number of active listings or suitable alternative substitutes. One size, once again, does not fit all.

 

[residentialguy]

No, you're wrong George. Banks have undue stimulus to sell. They have to sell or they'll go under. They're distressed sales.

 

[Joyce Potts]

No, you're wrong George. Banks have undue stimulus to sell. They have to sell or they'll go under. They're distressed sales.

OMG, you mean you seriously believe that banks will be held accountable for their actions? What explains the banks that got bailed out and the more toxic loans they had on their books, the more TARP money they got?

You call that distressed? I'd call the homeowner and taxpayer distressed.

Those OLD rules of supply and demand, distress vs. non-distressed are long gone in many cases which is why you can no longer blanket or profile these properties by who the seller is.

 

[George Hatch]

ResGuy

Unfortunately for you and your "other" business interests the facts on the ground in this region directly contradict that.

BTW, there are analysts who are saying that the buildout of bad loans and eventual foreclosures could go for another 10-12 years in some areas. Lenders are commonly allowing borrowers to go 2 years before they even send out an NOD. Regardless of whatever nomenclature or inventive vocabulary you might want to run here it's become pretty obvious that nobody at the banks is particularly panicked about the regulators coming in to shut them down over bad loans.

All RE is local. If the apocalypse hasn't happened up in igloo country then that's great. The boom times passed you guys by, too. Consider yourselves blessed by God. But if you tried to bring your line down into this region and ignore the trends here you'd get smoked in no time flat.

 

[Joyce Potts]

George, what defines a trend and can they change as markets and unprecedented external influences change?

 

[George Hatch]

I suppose it depends on your perspective. If someone has adopted ResGuy's worldview that "typical" or "undue" are benchmarked against what was common before the bust then there's no such thing as change and that if NAR and the other market bulls want our opinions they'll give them to us.

On the other hand if someone thinks of the principal of change in terms of other than lip service then it stands to reason that almost anything is possible, depending on external factors.

ResGuy is basically arguing the "banks are automatically distressed" angle as a fundamental - meaning it is always so and there basically aren't any exceptions. That means that any exceptions would belie the assertion. And unfortunately for the purveyors of such dogma there have already been at least as many exceptions IRL as not. Meaning, it's obviously not a presumption anyone can arbitrarily rely upon as a fundamental.

The facts on the ground and the manner in which the market is behaving speak for themselves, which is why NAR and the bulls can't quash the use of the data in appraisals no matter how they try. All they can hope for is to line up enough team players to advance the ball.