Jim,
I am not blaming the any body. I am just describing the facts. I think everyone has a right to be stupid and make an stupid mistake or be negligent but it is not for me, you or typical homebuyer to feel sympathy for that person especially when the mistakes is financial.
Remember we are appraisers and we don't appraise the emotion and should not get emotional when we do appraisal. We deal with market and numbers and market has no emotion. . We are not priest or clergy, social worker, or psychologist.
Where did I say that I as the appraiser feel sympathy and base my value on my emotion? I believe I said I am philosophically a lover of reason and find the reaction of most people on these matters (saying most people believe in miracles, etc.) rather superstitious and silly. But I am not there to tell the client what I would pay for the house. It is my job to read the market and the market's reaction. The market is made up of people who buy based on emotion, who do feel empathetic (I am not claiming sympathetic that is harmony in feeling and is different than empathy), or who do decide NOT to be in the market for REO properties when looking for a house to live in. It is a fact that very often different market segments are interested in those properties, and it is up to me to identify my market, analyze that market and complete the appraisal based on how the market sees the property. No one is saying doing an appraisal is easy. It is easy to use only the bank owned sales without looking deeper. And frankly, it is often wrong to avoid the use of bank owned sales. But in my markets, whether you agree with how the market works or not, bank owned and short sale properties with the same amount of marketing time typically set the lower end of the value range, that is, they sell for less than the private seller market.
With all due respect, I am seriously disagreeing with the way you see the market.
You telling me that I should find a non-bank sale from out of my subject subdivision as if the short sale is asymmetry and limited only to my subject’s subdivision.
I am shocked that you would disagree. I am not saying in the end you would should avoid the use of the bank owned or short sales in the neighborhood. I am saying you should investigate your entire market including out of project sales for sake of making sure you are not underappraising the house, which is as bad as overappraising it.
You are in a market similar to mine in which predominate sales are short sales or REOs. In such markets, the non-bank influenced sales have to follow the bank-influenced sales because the market forces them to do so or get off the market.
Perhaps. Each market area is different and each time I do a market area it is subject to change. But in most cases the bank owned sales set the lower end of the value range. In my area during the fall and winter it is common for the investor market to pick up because values are at a low (i.e., demand softens). So I saw neighborhoods where the only sales were bank owned and REO properties. But when the spring came the regular buyers and sellers came out and now the sales are for the non-Bank owned properties. The market I did an inspection in today from February 1, 2008 to March 31, 2008 had the average sale at 3,150sf selling for $507,997 or $158.58/sf, but the closings after March up to now has the average sale at 3,249sf selling at $559,250 or $172.99/sf. Did the market values go up between then and now? No! Since March the bulk of my buyers have been non-investors buying non-REO and non-Short sale properties.
In my case that I mentioned, my heart goes to the owner who has lost money but I am an appraiser and was asked to appraise her home at market value. She didn’t ask me to feel sorry and cry for her, she asked to do an honest appraisal and it is not my heart that does the appraisal, it is my mind and logic that does the appraisal.
And so, in order to find out what the real market value of her house is, it is incumbant upon you to determine if short sales and REO really do set the market or not. The only way to do that is to look deeper and take an extra hour or two to read the entire competitve market. But don't short change the woman.
I have 9 listings in my subdivision, which are all short sales and best indicative for my subject market value.
Maybe, probably not. The time from a contract to closing when it comes to short sales can be unusually long and there is a lot of stress involved if you have to move into the house by a certain time. This is often enough of a deterent for the typical buyer, as opposed to the investor buyer, to pass over the property as a viable alternative to your subject.
If I look for a non- bank sale out of my subdivision and rely on it for my subject market value, I am going to distort the market value for my subject because if she listed that home based on that appraisal, it is not going to be sold as long as those 9 short sales similar to my subject sitting there with 10% lower asking price. The listing agent can advertise that the listing is not short sale, that the listing is regular sale with a nice owner but for a typical homebuyer, $80,000 less in sales price of similar homes makes more sense than who has agreed to sell the home and how happy is the homeowner who is selling the home.
You are not relying on out of subdivision sales for your subject value. You are relying on them to find a market reaction to the stigma of bank involvement. Maybe it is only 5% in your market, maybe it is $25,000 or $10,000, or nothing. You have to find that out. Let's say you have two or three competitive properties in the area and you find a couple of sales that did not have bank involvement that were recent. Well, if your market is like mine, that subdivision will also have houses have sold recent that were bank influenced, and you simply compare the difference between them and look to see what the market reaction is. It is no different than having a golf course house to appraise in a project when you have no other golf course front sales. You look for a market reaction from a competitive project on the outside.
But on your larger point, you do not know how long her house will sit at a higher price. A short sale is not a straight forward sale. There is a long wait between offer and acceptance and there is no guarantee the offer will be accepted. If you have a house for sale at $800,000 as a short sale where you will not hear back until September and it might fall through and you are trying to get your kids into the best school district in the area, and then you have a sale you can make an offer on and get acceptance on tomorrow for some price above $800K and know your kids will be in school on time and that unless something goes wrong on your finance end you will get the house, how much more would you be willing to pay? The non-Short sale has different appeal. Put it to you this way: If you have a choice for both properties, and they are both identical, and they are both priced the same, which would you buy? I think everyone in the market would have the same answer, which means there is higher demand for the non-Short sale house. Hopefully for the seller's sake the door is open for a bidding war.
And it is the principle of substition. Real estate sale is not supposed to complete fast like an stock market. The negotion and decision making is time consuming and buyers and sellers know it.
The principle of substitute requires adjustments to be made to make the comparable sales equal to the subject. The fact that there is a tradition of bank owned and short sale properties setting the lower end of the market value in real estate for time immemorial tells you that when you are appraising a non-bank owned sale you have to consider the market reaction of the difference in ownership. You know Moh, maybe there is none and maybe you get done with the report and spend an extra hour or two and find the value is the same it would have been without doing the research, but at least showing you did the research and explaining your findings in the report will make your report more credible.
