REO sales and "Market Value"

[moh malekpour]

When any statement or opinion starts with "may" or "may be" or "might" or "might be", I don't take it for granted because there is the other side of it that has not been mentioned. for any "may" there has to be a "may not".

 

[JSmith43]

You are all very serious, professional appraisers with a very different view of interpretation of "Market Value". I see this as airing out those differences so that we can and will understand that each of us have an obligation to defend our positions.

I agree with that part and I think a dipstick can add to a debate now & then.
Taking that logic to an extreme, I could be watching MSNBC 24/7. Ain't gonna happen here.

 

[residentialguy]

I'm doing a land sale right now for pre-foreclosure. For REO land sales, there is a 20% variance of price from a normal traditional arm's length seller. 35% variance for a liquidation sale of 30 days or less.

There are no improvements to throw this variance on to physical condition of the improvements. It's all about the REO.

 

[Randolph Kinney]

Yeah, when someone who pretends to be an authority on bankruptcy and posts something from the internet as backing his opinion, not his experience, BS needs to be called.

An opportunity was afforded to correct the misinformation but we got this person's expertise as an assurance about Chapter 13 bankruptcy always involving "... merely the retail cost to replace an item of personal property or real estate", not market value.

Just imagine adjusting 5 of 6 of the comparables upwards $5,000 in recognition that the seller was the bank, which he testified had an effect on the market.

The judge saw through that by noting if 5 out 6 sales are bank owned REO sales and 1 sale was a non-REO sale, that adjustment did not reflect the market and most of those REO sales involved multiple bids resulting in the final sales price above the listing price.

No less than apples and figs comparison. :laugh:

 

[J Grant]

I'm doing a land sale right now for pre-foreclosure. For REO land sales, there is a 20% variance of price from a normal traditional arm's length seller. 35% variance for a liquidation sale of 30 days or less.

There are no improvements to throw this variance on to physical condition of the improvements. It's all about the REO.

There is an element of truth to this, but the appraiser can't simply say, "it's all about the REO". It's about the market conditions that created the REO's. Are the market conditions that led to the high # of REO's still in effect? Are they still impacting prices ? What is the % of REO listings vs non REO listings?

This is an interesting scenario, because there is no inferior condition or vacant aspect of a house to dampen buyer appeal. Assuming, for sake of example, that some of the lots are similar, why would an informed buyer pay 20% more for a non REO lot?

Normally, there are differences among lots, so the next question is, what are the lots most comparable to your subect selling, and lisitng for? Do the lots very similar to your subject exhibit the 20% generic statistic?


Location and elevation, view will affect prices, so those factors have to be separated out from sale status. Then there is the financing aspect...are private owner sales offering owner financing or cash back or second mortgages? Does that account for some of the higher prices?

These are questons that need to be asked and the market will provide the answers....an interesting assingment.

 

[residentialguy]

why would an informed buyer pay 20% more for a non REO lot?

It's not a matter of paying more for a non REO lot. It's about a reason for not paying market value for the REO. Whether you want to believe it or not, many issues come up with these properties. Title, legality of foreclosure, multiple banks...just talked to one where another owner was found. People buying lots are investing in building. I have one lot that the buyer bought the land for $750k. He turned around and has it listed for $1,200,000. (He won't get that, but he'll probably get around $900-950k)
Another lot that has a house was purchased for $950 as a REO. MV is about $1,550,000.

These distressed sales are affecting the market, but they are running fairly parallel.

 

[J Grant]

It's not a matter of paying more for a non REO lot.

The appraiser has to explore both sides of the issue. Arriving at MV means researching and analyizing why buyers are paying more, as well as less, for similar properties.

A certain amount of research shows you that buyers are paying less for REO lots. Fine. But why do you stop there? Unless you dof urther research, it is unknown if the only reason buyers are paying more for private sale lots is the REO status of some lots/ You have to see if the owner lots are offering private financing, cash back at closing, or other terms. If any of that accounts for higher prices, it has to be disclosed and possibly adjusted for. If research shows none of that is present, then you can state the price difference is just REO status.

It's about a reason for not paying market value for the REO.

Here is the fallacy about your thinking of MV. Once again, you are starting a report with the assumption that the higher sales are MV prices. You did a chart with possibly dis similar land sales lumped together, and assume a 20% higher price for non REO's.. But you havent' done the report yet, you don't even know what MV is? Should MV be on the high side for subject lot? Is the area troubled, why are there so many REO's present? Is owner financing or terms making private sales sell for more? How do you know, if you don't even ask the questions? It may turn out that the 20% higher sales are MV, but you can't start a report assuming that, and then doing no other research that would disprove your own assumption.

Whether you want to believe it or not, many issues come up with these properties. Title, legality of foreclosure, multiple banks...just talked to one where another owner was found. People buying lots are investing in building. I have one lot that the buyer bought the land for $750k. He turned around and has it listed for $1,200,000. (He won't get that, but he'll probably get around $900-950k)
Another lot that has a house was purchased for $950 as a REO. MV is about $1,550,000.

These distressed sales are affecting the market, but they are running fairly parallel.

See above comments. I recognize that there may be issues that come up with REO properties, although legal title or title problems after the sale does not seem that common. Investors with cash are more drawn to REO's and can buy quicker, still , you can't assume where MV is, each report has to discover where it is for subject property and set of market conditions.

 

[J Grant]

Res Guy, why are there so many land sales that are RO's in subject area? What is the avg marketing time of private owner land sales?

 

[residentialguy]

My file for this is nearly 2 inches thick with research work and have called every professional Lake Front agent in that area, the city assessor, the county assessor, and 2 of the most well known and competent appraisers for that area. Trust me....I'm not missing a stone.


"Here is the fallacy about your thinking of MV. Once again, you are starting a report with the assumption that the higher sales are MV prices."

No...I did not search by price. Price has no factor in my search. It was distressed sales verses non-disressed.

 

[J Grant]

So....do the private owner sales have owner financing? And what are their marketing times? (if you feel like answering)

If private sale lots are selling in 400 days, then that is the market exposure time if your MVO is in the high price range of sales that take 400 days on average to sell ( just as an example)