Short Sale / Market Value

[PL1957]

In the example provided, the Seller IS affected by undue stimulus (pending foreclosure) and he also is atypically motivated for the same reason.

What is the undue stimulus? It's not like he's getting anything from the sale. He's already lost his equity and is losing the property regardless of whether it's a short sale, a deed in lieu or a foreclosure. His interest in the property is gone, no matter what. If it's a recourse loan, he's potentially liable for a deficiency judgement, regardless of the way the property goes back. If anything, it's in his best interest to fight the short sale and drag the foreclosure out because he probably retains use of the property through the process. It becomes a business decision as to whether to go short sale or not.

 

[NorthTexValuation]

This collective group isn't trying to solve a specific appraisal problem (at least I'm not.) We just don't agree with the notion...

Thanks for saving me the time to respond similarly to MichCGs rather condascending and rambling diatribe that had nothing to do with "the collective Res. Certs." problem with this MAI.

Questioning the MAIs competance had nothing to do with the appraisal, but everything to do with his assertion that (a) a short sale was always considered to be a "market transaction", that (b) the opinion of value always had to be reconciled to contract price and that (c) opinion of value could never exceed contract price.

None of those "mandates" would be considered good appraisal practice and it does not matter if the property is residential or commercial.

 

[JSmith43]

Where the heck is Don Swenson now that we really need him?:icon_mrgreen:

Someone is always going broke in the commercial realm. Bye Bye AA, although I beleve reorganization will be approved.

This is a great thread to flesh out why some of the hypothetical conditions in the FIRREA definition of MV are scoffed at by many CG's. Next thing you know, someone might refer to the hypothetical conditions as hyperbola

 

[J Grant]

What then, is the MV definition that CG's are using in their market value purpose reports? Do they have a standard fair market defintion , or use the same FIREEA defintion we see on the res forms, are they all using the same definition of MV??

(I am asking about market value purpose appraisals, I am aware there are other types of value purpose appraisals)

 

[PS111222333444]

Thanks for all the input - client has asked for Market Value As-Is. The property is vacant and previously owner occupied. An illegal apartment is occupied, rent free, by a person acting as caretaker. This is not an investor property.

The subject's market is minuscule and there are no comps in the immediate area that have sold or are listed as short sales. Commercial/industrial comps can often be many miles from the subject requiring locationale adjustments.

On the commercial side of things, I’m surprised that an Advisory Opinion hasn’t been created for this topic. Bottom line for me is that a short sale can’t be an arms length transaction if the seller is under duress. A short sale seems often to benefit the buyer (seller as well if a non-recourse state or other agreement with the lender) – why else go through such a dubious process?

 

[CANative]

IMO, a short sale is an arms-length, market transaction as long as the property was exposed to the market and sold to an unrelated party with no interests outside of the transaction.

Step one: Do the appraisal
Step two: Analyze the contract
Step three: report the above

 

[residentialguy]

OP,

If there is a market reaction to the short sale compared to the MV defined, the market value will most likely be different than the contract price.

 

[J Grant]

I am not sure why all the angst about the subject being a short sale ...is it because the subject sale price is lower than your non short sale comps?

Assuming you are not following the advice of this MAI, of course you can value the subject higher than it's contract price. You do have one REO comp, perhaps that price might be weighted the most, and explained why.

Though there might not have been advisory opinions for just commercial (according to your statement,) the Appraisal Foundation, Fannie, Freddie, as well as many court cases of res and commercial have opined that both short sale and REO sales can be used as comps, and need to be considered if their presence indicates market trends...even if you don't use them as comps in a report, an appraiser should at least disclose the short sale/REO sale and listing activity and discuss the impact in area.

If your appraised value is above the sales contract price, so be it. Just explain why.

 

[PS111222333444]

Commercial doesn't typically follow Fannie or Freddie guidelines unless small incoming producing multi-family.

And yes, the angst is all about short sales being dramatically lower than normal market transactions. Sometimes the far side of 50%.

 

[residentialguy]

And yes, the angst is all about short sales being dramatically lower than normal market transactions. Sometimes the far side of 50%.

And there is the reason why your EMV is higher than the contract.