REO's as comparables to non-REO

[residentialguy]

Seriously, I can't answer your question because it is so weird!

Why is that so weird to want to know how much you personally could sell your home for? The bank wants to know how much they, as a lender, can sell the home for???

You are separating REO and "traditional" sales, the word traditional does not exist in USPAP or any appraisal guidelines so truly, the question is so off base I can't answer it.

Are you confused when you see that in a listing? "Traditional seller...no banks to deal with"

I tell you what....I'll use "fair sale" instead. That is in FNMA's definition of MV.

Let me know if that helps.

When a lender is going to take back a house, they know it is an REO, so why would they want to know "what an REO would sell for"?

For what ever reason. Maybe they want to know what to realistically list it for. Maybe to check to see if the BPO is accurate. Haven't you done an appraisal for a homeowner so the homeowner knows what it's worth? Maybe they're going to put it on the market.

 

[DMZwerg]

Nicely done Grant. "IT" is all market. it is all market, given arms length in nature transactions.

Which market?
The REO market, the traditional sale market, the waterfront home market?

If a particular MLS system is representative of "the market" then what we are dealing with are sub-markets or market segments, otherwise we could be using Lake Geneva comps for a subject in Oshkosh (ignoring entire counties in between). Since that is ludicrous it is clear obvious that local markets are sub-markets or market segments and thus the claim "it is all one market" as relating to REOs and non-distressed sales can not be made based on such "evidence".

Duress? The whole damn county is under duress (except government employees) or everybody is equally uneasy and urgent......how do you want to define it? Every body is moving backgammon pieces in their lives.

Bull.
Pick up the stack of cards as within the last 12 months I have seen new housing construction thus as I have disproved your statement in one case it can not be correct as stated.

 

[Michigan CG]

..................The other day I did a lake front property...not one other similar sale on that lake. I've had to go back 2 years and out 25 miles. ..........

The "go back in time, many miles out and use normal sales" brothers are back.

 

[residentialguy]

I've had plenty. The other day I did a lake front property...not one other similar sale on that lake. I've had to go back 2 years and out 25 miles. No one said they were all going to be cookie cutters. That's why they pay us the big bucks!

The "go back in time, many miles out and use normal sales" brothers are back.

So what homes would you use....ice fishing huts? :icon_lol:

 

[DMZwerg]

Quick response before I go out
FOR WHICH SEGMENT (or sub-market)?
Why are you dividing the market into segments? The subject is in an area, the sales around it form the market. Some sales sell for less, some for more. We can make graphs that lake view homes sell for 30% more than non lakeview homes.

No, the subject and the properties around it are the neighborhood. As for markets being based on proximity (with no sub-markets or market segments) you are telling me that the contemporary ranch (with master bedroom separated from the rest of the bedrooms) has the same potential buyer pool as the colonial (with all bedrooms together upstairs); and as the Prairie Style home with walk-out basement; and the condo; and the property with lake view; and the property with lake frontage???

But the Colonial tends to be most attractive to buyers with young families, the contemporary ranch for those with teens, the Prairie home to the empty nesters or wealthier with no kids, and the condo to the busy professional without family or grandma who's husband died last June.
Further the person who bought the house without the lake view only wishes he could get a nice lake view just like the person who bought that one dreams about being able to afford one with actual water frontage some day.
I remember back in the day when terms like "starter home" were typically common for 1 BRs and so forth.

In other words there is a reason I look at different market segments (or sub-markets) ... because they exist and are applicable.

 

[residentialguy]

DMZ,

Can you edit that last post and bold the other poster's words. Too hard to read....it's like a schizophrenic talking

 

[DMZwerg]

If your subject is in good condition, and a number of REO sales are in good condition, why aren't you using them? Because a chart said that distressed sales are selling for less? But the chart was based on a mix of distressed sales in poor condition along with distressed sales in good condition, are the results reliable?

No, OI am not using them because I examined them and they are selling for 10%-30% less than traditional sales.

Re, the defintion of a typical buyer of SFR is ans owner occupant where does it specify that in the guidelines or USPAP...
USPAP refers to typical buyer and typical motivation, they dont' spell out that typical buyer has to mean owner occupant.

"It is intuitively obvious."

I think we tend to think of typical as owner occupant because it was that way for many years and we are comfortable with that definition

Which is the definition of "typical" isn't it?woohoo

As appraisers, we dont' get to pick and choose market particpants. We may not like it that investors are buying and renting out, but if enough of them are in an area, they are a typical buyer.

I think you are confusing "typical" with "predominant", as in "then they are the predominant buyer.

You saw tomato, I say tomato. We disagree on what the definition of market value is based on our respective interpretations of "typical" as in "typically motivated". I contend that when the definition was written it was intuitively obvious what the definition meant, just like it was 5-10 years ago, and now that the markets are more complex some people are scrambling to CYA by creatively interpreting the definition of market value.

Would you talk to realtors and get information that doctors in Mercedes are buying in an area and that they pay more, and then do a chart that shows they pay more, and then decide to not include any sales to them because they paid more and are driving prices up?

The typical buyer in Kenosha was from Illinois for years but that does not mean they weren't "typically motivated" only that they generally had more relative equity and thus could often afford more expensive houses than most locals seeking to buy.

What is the definition of words distressed and REO as you use it.. are distressed homes the homes in poor condition, or are you counting as distressed any home sold as an REO, even if it is in good condition?

http://dictionary.reference.com/browse/distressed

Definitions 1, 2 & 3.
In reference to #1 click link on word "distress" and refer to #2.

Clear enough?

Note that based on definition #3 ALL REO/foreclosures are by definition distressed sales.

 

[Michigan CG]

...not one other similar sale on that lake......



So what homes would you use....ice fishing huts? :icon_lol:

We have already seen this episode multiple times starring you and Zwerg where the appraiser must go multiple miles away and back in time so as to not use REO sales next door and only use "normal" sales.

 

[Terrel L. Shields]

the appraiser must go multiple miles away and back in time so as to not use REO sales next door and only use "normal" sales.

That is the gist of Frank Harrisons book, "Appraising the Hard Ones"
REO = distressed... the bank does not want the property and has no use for it. It generates no income for the bank and they cannot live it in....fixed up or not.

And, again, within the sphere of market influences, [to L w/ the extremely limited "neighborhood"]; that is, the area that a buyer would consider which would be the distance they were willing to commute to work 9 of 10 times; fixating on the closest three sales hardly means they are good comps...and the adjustment for time in my market is generally much less than the adjustment between an REO and an arms length sale between owner/occupant and a potential owner/occupant.

 

[DMZwerg]

If 60% of sales are REO's and Shorts, most of your comps should be Shorts and REOs.

Please, please look up the definition of "creative financing".

If you are using all short sales without adjustment then the value you are determining is the value under creative financing, which is verbotten by the definition of market value.

So, looking at REOs and the definition of market value we have:

1. whether or not it is a "fair sale"
2. whether REO status can be considered "undue stimulus" as the bank HAS to liquidate it off their books within a certain number of years and often has to liquidate a certain number of such properties off the books within the next 30 days or risk getting a bad rating and the bank itself being liquidated
3. whether the motivation of the seller (lender) is typical
4. whether a bank is acting in its own best interests and operating under "a reasonable exposure time" (see #2)
5. normal consideration
6. special financing

So, how many of them does an REO have to violate to have not been a transaction that violates the definition of "market value", and if the sale did not meet market value what adjustment must be considered to use it as a potential comp in determining market value?