REO's as comparables to non-REO

[residentialguy]

The opposite if true, using a static definition is easy, just ignore any REO or short sales or anything else you want based on that.

You keep saying that, but that has never been my position. There's a post with size 7 font repeating this (stated multiple times), but you keep ignoring it. Ignoring it doesn't make the fact that you are taking it out of context. You CAN use an REO to help support value. However, if the market sees a value variance in that condition of sale from a traditional fair sale, then an adjustment is needed.

There is no such thing as a "moving" definition of market value.

I agree. Now if you would only stop moving the definition to fit what's the most prominent sale of the month, we'd be good. The market changes but our measure of the sale defined does not.

If markets did not change and impact value, appraisals would not be needed, and lenders and other users could rely on a BlueBook value, much the way autos are valued, so much $ per sf, so much $ for X amount of land, and deduct X% a year for depreciation. Static appraising is formulaic appraising, the exact opposite of what we are supposed to be doing.

Changing market will always be reflected on a fair sale. Many factors will pull up, down and sideways. Static definition does not stop this and it will be reflected on market sales.

 

[residentialguy]

I go back to post 118 in regards to static definition.

1. the language used (undue stimulus, typically motivated) leads itself to describing a sale that is not a necessity to sell. An REO sale does not fit this.

2. MV describes a "Fair sale". One party doesn't have an advantage because of the other's situation.

3. To use a moving definition, it's all over the board...no consistency. What value is the appraiser using...most probable price a REO would sell for because it's over 50%? Most probable price a traditional sale would sell for because it's not over 75% REO? No standards. What is their risk assessment going to be based on?

4. To use a moving definition, any time you move from the fair sale to a REO as the guide, you alienate the fair sale. Now you won't appraise Joe's home for what the most probable price the market will pay. Deal is dead or they have to lower the price, which causes a spiral down with all sales. FNMA is a lender...I highly doubt that they put in a definition of market value that would alienate the traditional homeowner selling his home


Is there a value difference? You can't have 2 values for the same question.

If there is, then the only way you can overcome this is to give 2 values.
"If the subject sold as a traditional sale, estimated market value opinion is $300,000. Predominent sales in the area are REOs. The most probable price the subject would bring as a REO is $270,000."
(of course, now you're doing 2 appraisals...hope they don't mind you charging double) woohoo

 

[hastalavista]

Litmus test. Is there a value difference? You can't have 2 values for the same question.

If there is, then the only way you can overcome this is to give 2 values.
"If the subject sold as a traditional sale, estimated market value opinion is $300,000. Predominent sales in the area are REOs. The most probable price the subject would bring as a REO is $270,000."
(of course, now you're doing 2 appraisals...hope they don't mind you charging double) woohoo

If I follow you, what you are saying is this:
If the subject is an REO, it will sell for $270k.
If the subject is a non-REO, it will sell for $300k.
Therefore, those are two values for the same subject using the same definition of value, and as a consequence, there must be a mistake because the same definition for the same subject is concluding two different results.

Do I understand the position correctly?

 

[residentialguy]

If I follow you, what you are saying is this:
If the subject is an REO, it will sell for $270k.
If the subject is a non-REO, it will sell for $300k.
Therefore, those are two values for the same subject using the same definition of value, and as a consequence, there must be a mistake because the same definition for the same subject is concluding two different results.

Do I understand the position correctly?

I'm saying that this helps identify that the comp does not meet all criteria of the type of MV requested. Bear in mind, value variance is not necessary for the comp to fall out of MV as defined. It may have the same value and still not meet market value definition.

You don't have 2 values for MV, unless they want a range to incorporate fair sales and sales that fall out of the definition.

 

[hastalavista]

I'm saying that this helps identify that the comp does not meet all criteria of the type of MV requested. Bear in mind, value variance is not necessary for the comp to fall out of MV as defined. It may have the same value and still not meet market value definition.

You don't have 2 values for MV, unless they want a range to incorporate fair sales and sales that fall out of the definition.

Res-

I wanted my question to be clear; maybe it wasn't.
I'm not sure how to interpret your answer in regard to my question?

Are you saying that if a subject can have two market values; one based on it being an REO and the other based on it not being an REO, then there must be something wrong with the analysis (and probably the comparable selection) since the subject should have only one market value, REO or not REO?

If you are saying that, then I disagree with you.
If you are not saying that, then no problem (and I'll re-read the threads because I am not understanding this part of the discussion).

 

[residentialguy]

No, I'm not saying that. Hope that clears it up :icon_mrgreen:

 

[hastalavista]

No, I'm not saying that. Hope that clears it up :icon_mrgreen:

It does, thanks!

These discussions take so many turns, that I need to have a program to remember who the players are.

I was recently in a discussion with a peer who said that the value of the subject (REO) shouldn't be any different if the status was non-REO and if one is appraising it using the definition of market value.
Her position was that the REO status of the subject has no impact on the market value under any circumstances.
I very much disagreed with her position.

:new_smile-l:

 

[J Grant]

However, if the market sees a value variance in that condition of sale from a traditional fair sale, then an adjustment is needed.

There is no such thing as a "traditional fair sale" in appraising. You are making that defintion up.

If you use an REO sale and you feel the condition of sale of the REO deserves an adjustment, then you adjust the REO up to the subject.

That is why the subject is "assumed" to be a MV sale, so we can choose comps and adjust for condition of sale, financing etc against the theoretical MV sale def of the subject.

 

[J Grant]

I was recently in a discussion with a peer who said that the value of the subject (REO) shouldn't be any different if the status was non-REO and if one is appraising it using the definition of market value.
Her position was that the REO status of the subject has no impact on the market value under any circumstances.

I agree with your peer on this one. Assuming the purpose of the report is to find the market value of the subject, the fact that the subject is owned by a lender, becomes irrlevant for the purposes of the appraisal.

First of all, although we refer to them that way, there is no such thing as "an REO" and a "non REO". REO is a form of ownerhsip (Real Estate Owned). Thus, the house is a house, and it is owned by a lender instead of a private peson. When it sells again, we refer to it as an "REO sale" .

Okay, so you have been assigned to appraise 5 Orange Street, a house that is owned by a lender, and the purpose is to find market value, You get the assignment, they ask for an REO addendum with three listings and an as repaired value (if there are repairs).

Is this all of a sudden an "REO appraisal? Are you suddenly supposed to "find REO value"?

Unless you discuss it with the lender and inform them that you are not going to appraise for market value, but are going to appraise for "REO value" (whatever that means), and they agree, and you disclose on report that the purpose is to "Find REO value, ", then your assignment is to arrive at a market value the subject of 5 Orange Lane.

Whether or not the lender is a under undue sitmulus or is typically motivated for assignment purposes because, you are supposed to appraise the subject according to the definition of market value ( a sale sold by a typically motivad seller, regardless of who the "real" seller is).

As an analogy, take a Broadway play, "Death of a Salesman" . An actor, Bob Jones, is hired to play Willie Loman. For the two hours he is onstage, Bob Jones, acts, moves, and speaks like Willie Loman, because that is his job. In other words, for the purpsoes of the play, Willie Loman takes precdence over the "real" Bob Jones.

When it is your job to appraise the subject for market value, and the subject of an REO, for apprisal purposes, the definition of the MV seller, (typically motivated leller) takes precendence over who the "real" seller is ( the bank in this case).

RE, your assignment is to find MV for 5 Orange Lane owned by a lender, and you come up with a market value for 90k. Perrhaps , the bank will turn around and sell 5 Orange Lane next week for an "under market" price of 50k.

That doesn't matter, becaue on the effective date, you appraised 5 Orange Lane according to the defintion of finding market value for the subject, which was the purpose of the appraisal.

 

[J Grant]

comp does not meet all criteria of the type of MV requested

A comp is not supposed to meet the criteria of MV.
(see my related posts)

We are estabishing MV for the subject , not picking comps that way ( comps are supposed to be arms length transactions, which is still not the same thing as MV)