REO sales and "Market Value"

[DMZwerg]

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

They are also distressed sales as per Fannie Mae, the Appraisal Institute, and a number of other sources.

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.

Actually no, the old rules still apply. Too many forget when many of the old rules were forged and especially that mulitple definitions of value exist (FIRREA Definition of Market Value, Disposition Value, Liquidation Value and at least dozens of others).

 

[George Hatch]

A - I don't think any professional appraiser should be taking appraisal instructions of any kind from Fannie or Freddie. They've already proven themselves to be incompetent at instructing appraisers on how to appraise.

B - A sale involving a distressed seller can easily fit what's typical in the market. That fact speaks for itself. That's y u mad.

C - All RE is local and what's typical for one type of house may not even be typical for the different kind of house located next door. Again, that fact speaks for itself.

D - Appraisers are supposed to approach their assignments with an open mind and look for the answers, not look for data that supports their biases.


PS: not even the rocket scientists at Fannie and Freddie have ever told appraisers not to use REOs or to arbitrarily consider them stigmatized in the market.

 

[DMZwerg]

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.

Odd, I could have sworn that within the last month there was a thread with links to documents indicating both FNMA and the AI stated the same thing.

REOs are a type of distressed sale.

The seller is not typically motivated, but rather under compulsion to sell (law states they have to sell within 3 years, renewable for 3, but can also be foreshortened by the regulators; if within 1 month or less this could be extreme compulsion to sell)

REOs are typically marketed to sell within a few months if not less whereas the understanding of a typically motivated seller can chose to sell or not sell at all.
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Market Value (FIRREA), Disposition Value, Liquidation Value. Three different but related definitions that tend to pick up where the last left off. Knowing the difference is the key to whether or not REOs are or even can be appropriate in a report, how they should be used, and what adjustment(s) the REOs require.

 

[DMZwerg]

All RE is local and what's typical for one type of house may not even be typical for the different kind of house located next door. Again, that fact speaks for itself.

Well, if all real estate is local just write your own local definition of value and ignore everything else because, well, all real estate is local.

 

[George Hatch]

A - I don't think any professional appraiser should be taking appraisal instructions of any kind from Fannie or Freddie. They've already proven themselves to be incompetent at instructing appraisers on how to appraise.

B - A sale involving a distressed seller can easily fit what's typical in the market. That fact speaks for itself. That's y u mad.

C - All RE is local and what's typical for one type of house may not even be typical for the different kind of house located next door. Again, that fact speaks for itself.

D - Appraisers are supposed to approach their assignments with an open mind and look for the answers, not look for data that supports their biases.


PS: not even the rocket scientists at Fannie and Freddie have ever told appraisers not to use REOs or to arbitrarily consider them stigmatized in the market.

Already addressed those points. If you can't refute them then you need to find another angle.

In a heavily impacted market segment *every* seller may be distressed. Why else would they book the loss?

And yes, when I say *every* seller I mean exactly that. There are entire subdivisions in this region that were built back during the boom where 100% of the original buyers are down by 30% or 50% or even more relative to their purchase prices. Not one of them is selling and booking the loss for the fun of it - if they're selling its because they have to. Whether they disclose the reasons for their distress or not.

I think it's downright stoopid to assume the "traditional" sales in such situations don't involve any seller distress. Just because it's not disclosed doesn't mean it's not there.


Look first in your assignment, *then* draw the conclusion. Let the data speak for itself. An appraiser can never go wrong by keeping an open mind about the actions in the market.

You guys are way too young and inexperienced in this business to assume the role of the has-been form monkey. Wait around until you've at least experienced an entire economic cycle before declaring that you've seen it all.

 

[residentialguy]

A sale involving a distressed seller can easily fit what's typical in the market. That fact speaks for itself. That's y u mad.

Doesn't matter if they are predominant. The lender isn't selling to other banks, they are selling to homeowners (and investors who buy distressed sales to sell at market value). To say all their market is atypical and the distressed sale is the reflection of the definition of market value...well that's just mad thinking. They want the value of what the homeowner can sell it for. They know how much REOs are selling for...they have a few for sale.



D - Appraisers are supposed to approach their assignments with an open mind and look for the answers, not look for data that supports their biases.

No bias. The lender wants market value, not the most probable price of a distress bank owned sale.



In a heavily impacted market segment *every* seller may be distressed. I think it's downright stoopid to assume the "traditional" sales in such situations don't involve any seller distress. Just because it's not disclosed doesn't mean it's not there.

Well...then they'll be selling at the same price then, won't they. No problem. :icon_mrgreen:

 

[Terrel L. Shields]

You keep referring to REO sales as sold for liquidation value, which is not correct either.

A lot of them are appraised that way even when the MV defintion appears to have been distorted greatly.

If we never, ever appraise above a contract price how can we possibly justify appraising below one?

such a good question...dovetails with my post on this same thread.

Think about this. If an agreed upon price is financed, and the appraisal comes in slightly low, the "deal" is likely to go ahead ... at least 50% of the time. The seller drops the price or the buyer scrapes up the difference from a relative. Usually, it's the seller who has to "give"...a buyers market they like to say. But if the appraisal comes in HIGH...who then jacks the price of the property up? Nobody. There is a built in bias in the pricing. Sales of property almost certainly has a real BIAS to the downside...and appraisers are the source of that bias in part. Clearly, if all property was priced according to the appraised price, then offers would be just as likely to be raised as lowered...Statistically, offers should revert to the mean. There should be roughly half the offers above market and half below. By setting MV as the TOP, the lenders are creating a market where the deviation from the mean is clipped at the mean...

One of the reasons I have been so hesitant to start posting here is that I noticed from my browsing that people often appear to be getting "attacked"

Never fear, I have it upon word of the moderators that no poster here has ever been bitten by other...at least hard enough to bring blood....

 

[gregb]

The REO reality in my market. Regional banks are under no duress, selling at Market Value, despite no warranties or TDS's from the seller. The big banks, using a couple of local brokers who price to sell fast, live in the lower spa, selling at various prices, often at market in a hot market.

 

[J Grant]

Terrel, if an appraised value is above a SC price, who, exactly is supposed to "jack the price up?".

We don't tell people what to pay. They can pay whatever they want. We are telling OUR client what the property is worth per the MV defintion.

If the buyer and seller agreed on 98k, and we appraise it at 100k, why should the buyer be forced to pay 100k? That's crazy. The agreed on price is 98k, The lender uses the 98k for the LTV of the loan as long as they have the MVO appraisal telling them it is worth 98k or above.

If we appraise it at 95k, below SC price, we still are not telling the buyer what to pay. They can pay 98k, if they want to put down 3k out of pocket. Our client, however, will only do a LTV off the 95k appraised amount. Bottom line, when a buyer goes for financing, their offer is contingent on finacing, and they are stuck with parameters besides the appraisal...including a max amount they can borrow accoding to their income, and a rate partly determined by their credit score.

 

[residentialguy]

The big banks, using a couple of local brokers who price to sell fast, live in the lower spa, selling at various prices, often at market in a hot market.

Look at you surrounded by RE cougars :icon_lol: