Short Sale / Market Value

[gregb]

I agree. And this PA might have some indication of the most probable price of what the subject will sell for as a short sale...but not of FNMA's Market Value.

Resguy, this is a mixed use property, where does FNMA's MV definition come into play?

 

[Michael S]

I've got a piece of commercial land I'm appraising with a signed contract. At the time they signed the contract 6 months ago based on the one good sale in the market and the cost of scraping the existing improvements it was a a perfectly reasonable price. Now I've got two better sales that closed after the contract was signed that indicate a value about 40% lower. Add to that 3-4 listings at half the contract price. In this case the contract price is definitely not supported.

Is the lender asking for the market value of the property? Or are they asking for another definition of value that includes a highly motivated seller? Is the seller on the hook for the difference or is the lender going to write it off. If it's the latter it seems like the seller would entertain just about any offer.

 

[residentialguy]

Resguy, this is a mixed use property, where does FNMA's MV definition come into play?

Ok...what definition is used? FIRREA's market value? Fair market value? Same problem exists. Unless they want liquidation value or most probable price of a short sale...it is going to come up "short"

 

[gregb]

Ok...what definition is used? FIRREA's market value? Fair market value? Same problem exists. Unless they want liquidation value or most probable price of a short sale...it is going to come up "short"

Guess the OP needs to clarify if its MV, disposition value or liquidation value or another value that the OP is asked to estimate.

 

[Michigan CG]

Yes there is a really good reason...they even labeled it "Short Sale" so that the most inept appraiser could see that it's not a market sale as defined in that presumed sale in your form.

First I've heard of it...a short sale does tend to be owner occupied, and they can drag out FOREVER...whereas REO sales are vacant and tend to sell quicker. Do Short sales sell higher than REO sales? I have not seen dollar for dollar trends, but sometimes it is true. Then again, realtors will compare a run down REO house in a different market area to a good condition short sale house in a disimilar location and think nothing of it .

I agree. And this PA might have some indication of the most probable price of what the subject will sell for as a short sale...but not of FNMA's Market Value.

........
3. Perfect example why this "pending short sale" is NOT reflective of Market Value. Seller is under extreme duress, therefore it cannot meet the definition of Market Value..........

I'm working with the one where mv is a sale with typical motivation and there is no undus stimulus to sell. Unlike that bank induced short sale needing 3rd party approval that has a high risk of being yanked from underneath the buyer's feet as they are carrying the sofa off of the truck.

If you think that Short sales are a good representation of MV, as defined....I'm scared.

And the collective group of you have how much experience appraising commercial properties and have how much data on the commercial market and have how much information how things work in commercial short sale situations?

This collective group has how much understanding of market rents and the decline in those rents for some properties while other commercial properties are increasing in value for the last few years?

This collective group of posters has a clear understanding of a Leased Fee Interest vs. a Fee Simple Interest or maybe even a Leasehold Interest assuming leases in place at one time vs. the current economic situation?

The OP has a mixed use property which includes comparables that have been converted to alternative uses including commercial and industrial uses which I am sure the posters understand from their experiences with AMCs and residential properties.

PLEASE.................

 

[residentialguy]

Yes Mich, we were just discussing that. More information is needed...coming from a CG. Thank you for your diatribe, though. I especially loved how your brows protruded in such a way that I could hardly make out your shadowed eyes peering down your nose.

 

[J Grant]

Purchase agreements do mean something, and they should be considered. But we are not supposed to appraise to them as a target. If that were the purpose of an appraisl, then why bother to order an appraisal? Any realtor could easily just agree with the purchase price (or a child could too). If the purchase price is the value, then appraisal as a field is unecssary.

 

[J Grant]

let the OP judge if our comments were relevant to him or not. He was not asking about leased fee interests or the income stream. He was asking about short sales and the contract price of the subject.

Res appraising and commercial appraising share the same principles. And res appraisers study commerical prinicples before becoming licensed, so it is not a foreign country. I would not comment on lease fee or income stream in a commercial post, but this OP did not ask about that.

At least the res appraisers offered content, a number of CG replies seem to be dedicated to dumping on other posters...

(my comment was a reply to GregB's question about a NAR statement, in his post #!3)

 

[Michigander]

Don't know about commercial, but one reason a lender would order a new appraisal before accepting a short sale offer has to do with some shenanigans going on with agents refraining from submitting all offers. Believe it or not, a short sale is an opportunity for someone to make a buck at the expense of the lender and homeowner. In my market, often shorts are offered even lower than REOs. The are a PIA and many agents won't touch them if they can help it. Others may have a side deal. Does this happen with commercial properties too?

 

[J Grant]

Short sales can be an indicator of MV. The "short " part is the negoitation between the property owner in danger of default and the lender, with the lender agreeing to take less than the mtge balance on an offer.

Before they entertain short sale offers, lenders require the property be listed a certain amount of time on MLS or other visible marketing. The prices of the property at that time can be fair or overpriced, but the property is exposed to the market before becoming listed as a short sale. Once an agent learns that the owner got approval from lender to take less than the mortgage amount, the agent uses the word "short sale" on the listing.

The final price is negotiated by the agent with the bank, and a buyer, having other choices, does not have to buy a short sale. But people are buying them and they are on the market in competition with other properties and can be financed with regular available financing etc, so as a comp they can be used in a MV appraisal (or any appraisal).

The fact that the subject is a short sale is not relevant to the value when appraising it.