REO's as comparables to non-REO

[residentialguy]

"Finally, we agree on something."

 

[residentialguy]

Basic appraising, always adjust the comps we never adjuste the subject.

Yeah, basic as it is, that still comes up. We have even regulars still try to argue that....i.e. seller concessions.

***bites tongue***

 

[Randolph Kinney]

If there are enough good 2 bath sales to make a bedroom adjustment, why should I use 1 bath sales if my subject was a 2 bath? The only time I would use a 1 bath comp is when I feel the 2 bath comp is needed to support another area that my 2 bath comps didn't have...view, quality, condition, etc. If I didn't need that, I wouldn't use them. Same with a REO.

To isolate the contribution each variable has using the simplest paired sale method, translates into REO with 1 bath and REO with 2 baths, traditional with 1 bath and traditional with 2 baths. Extracting the REO value contribution takes all of those sales, pairing them in combination, which is also known as a Latin Square. Testing for interaction between variables can also be done.

Therefore, if you have enough traditional sales, don't use the REO sales. It is that simple. If you don't have enough, you can't isolate the contribution.

 

[J Grant]

REs Guy, we are agreein gon more ponts, Randoph I agree on your posted points.

Re below:

Sorry, but they are asking for a hypothetical value. They want the value of the property as if it were the the most probable price of a sale that fits the exact confines of MV definition they gave you

No, they do not want a hypothetical value, which in appraisal terms means contrary to known facts, they want a probable value, based on conditions/assumptions ( the conditions being applying the standards of market value.

The crux of the issue is, how to most correctly interpret and apply a few of the terms in market value such as "typical" and "undue stimulus"

I pasted this definition below.

In the field of real estate appraisal, extraordinary assumptions and hypothetical conditions are two closely related types of assumptions which are made as predicating conditions of an appraisal problem. Under the Uniform Standards of Professional Appraisal Practice (USPAP), they are two of the assignment conditions on which an appraisal assignment is predicated, the others being general assumptions, laws & regulations, supplemental standards, jurisdictional exceptions, and other conditions affecting scope of work[1][2]. Making the distinction between the two is important when compiling or reporting appraisals in the United States or other jurisdictions where USPAP is considered the professional standard because USPAP has different specific disclosure requirements for each in an appraisal report and specifies different conditions under which each can be made[3].
An assumption is a statement or condition which is presumed or assumed to be true and from which a conclusion can be drawn. [4] USPAP defines an assumption as "that which is taken to be true"[5][6][7][8]. An extraordinary assumption is an assumption which if found to be false could alter the resulting opinion or conclusion[8][9][10][11]. A hypothetical condition is an assumption made contrary to fact, but which is assumed for the purpose of discussion, analysis, or formulation of opinions[8][12][13][14].
The distinction between the two lies in the potential veracity of the assumption. A hypothetical condition assumes a condition which is known to be contrary to fact whereas an extraordinary assumption assumes a condition or a fact which is merely unknown or uncertain. The results of an analysis involving any hypothetical conditions are known to not be reflective of what exists because the assumptions on which they are predicated are contrary to fact. The results of an analysis involving extraordinary assumptions are only potentially not reflective of what exists to the extent of the uncertainty underlying the assumptions on which the analysis or opinions are predicated

It is my opinion, that appraisers insisting that market value is a static, unchanging point of reference, are indeed, inadvertently, creating instead a hypothetical value, a condition contrary to known facts. That is, it can be proven that in a market with 60% REO sales that they have an impact on value and some might indeed be comparables . However, appraisers using a "static fixed " intrepreation for market value are ignoring this predominate market activity, acting as if it doesn't exist or doesn't impact value, ( contrary to known fact), and are instead going 2 miles away for what they consider "normal" sales, or "traditional " sales ( nowhere in USPAP does it mention normal sales or traditional sales).

And then some appraisers are taking it upon themselves to bisect the market into "traditional sales " and REO sales, which is their own decision, imo it has a lot of impilcations too long to post on now I'd be here all day.

Whatever our differing views, we are faced with applying definitions of verbiage that are fraught with implications and that is why I and others have taken such time to post our views. Unfortunately, since there is no "straight from God, the chief appraiser of the world" definition of these words we can rely on, appraisers have to live or die with their intrpretation of verbiage such as typical and undue stimulus, and stake their values on it.

Some appraisers won't touch a sale that they consider has "undue stimulus", even if it is direct competition to the subject and will instead go 5 miles away. Others here feel that in this market, what used to be considered "undue stimulus" or "durress", has becomse such a common and predominate force in some markets, that it can now be considered typical. That is why these term and their applications are subject to debate.

 

[residentialguy]

To isolate the contribution each variable has using the simplest paired sale method, translates into REO with 1 bath and REO with 2 baths, traditional with 1 bath and traditional with 2 baths. Extracting the REO value contribution takes all of those sales, pairing them in combination, which is also known as a Latin Square. Testing for interaction between variables can also be done.

Therefore, if you have enough traditional sales, don't use the REO sales. It is that simple. If you don't have enough, you can't isolate the contribution.

If you don't have enough, you can't say it no longer has value.

 

[J Grant]

Sorry, double post, edited it out please see longer post above.

 

[Mike Garrett RAA]

It doesn't matter if we use "traditional" or "typical" so long as we stop using "arm's length" to describe a sale that is not a short sale or an REO sale. Arm's length refers to "not related parties". I don't think USPAP even mentions "arm's length".

 

[residentialguy]

Thanks. They want to know the most probable price of the subject of a fair sale. It is a hypothetical problem to solve.

 

[residentialguy]

Sorry, but they are asking for a hypothetical value. They want the value of the property as if it were the the most probable price of a sale that fits the exact confines of MV definition they gave you

Now you're getting it

 

[Randolph Kinney]

If you don't have enough, you can't say it no longer has value.

Now you say that, I don't. Everything has value. Your problem is demonstrating and supporting the value opinion with out enough traditional sales.

You are dodging the point saying it no longer has value.