Short Sale / Market Value

[J Grant]

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%.

Then your market is different than what many of us see...where short sales are within 10% of other sale prices and just as often the same or even higher for a desireable house.

Being that your commercial property type area short sales are 50% lower than non short sales, it seems that the short sales meet the definition of distress sale value .

So if you are appraising for MV, and your subject has a low short sale contract price, you have plenty of proof from paired sales showing 50% lower short sale values, to support why your MVO is higher than the subject contract price.

 

[PL1957]

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

So the MAI was correct in having you come in at the lower, contract number ...

 

[George Hatch]

I like pending contracts because they are a piece of information. I usually don't give them a lot more weight than any other piece of sales data, though. Once in a while they're wrong.

In most datasets we handle we come across one or two sales transactions - each presumably starting off with a contract between willing buyer and seller - that don't fit the dominant trend we normally shoot for when appraising for "most probable". Some of those data points are unreasonably high and some are unreasonably low. If it can happen with a comparable it can happen with a subject, too.

When I'm coming up with something way different than the contract price I obviously go out of my way to figure the situation out before concluding otherwise, but it doesn't stop me from concluding otherwise when the contract is in the small minority. That's why these users want appraisals in these situations in the first place - to find out what else is going on in the market. Everyone knows that contracts occasionally get renegotiated after the appraisal is completed.

The one thing I know when the contract price is way different than my opinion of value and that is that the burden of proving the negative is on me. I not only have to demonstrate why I think my opinion is reasonable, I also have to demonstrate why I think the contract price is unreasonable if/when that's the case.

As for short sales and REOs sometimes that's a factor and sometimes it isn't. The only way anyone would be able to know one way or the other is to first consider all the data as a group before sorting for the different characteristics. I don't think it pays to start off with any assumptions in the current market.

To the OP, just a piece of advice: The next time you want to make a comment about not agreeing with a peer it might be best to omit their designation. It's an unnecessary tangent and it only serves to tee off another round of the "us vs them" mentality that is common on both sides of that argument.

 

[J Grant]

So the MAI was correct in having you come in at the lower, contract number ...

No, he is not correct, because this is a market value purpose appraisal. The OP stated his research shows short sales coming in on average 50% below MV prices.

Since, this is a MV appraisal, why would it be correct to come in below MV for the opinion of value, when the comps and research show a MV higher than the contract price?

The fact that the subject has a short sale contract does not make this a "Short sale value" appraisal, the purpose of the appraisal, per the OP, is to arrive at a market value opinion.

(See the post just above this, by G Hatch)

 

[residentialguy]

Never thought I'd see the day when we'd be talking about a short sale and I would be agreeing with JG....but I ageee!

**someone pinch me**

 

[JSmith43]

In most datasets we handle we come across one or two sales transactions - each presumably starting off with a contract between willing buyer and seller - that don't fit the dominant trend we normally shoot for when appraising for "most probable".

Isn't it really "most probable, under all conditions requisite of a fair sale & subject to other hyperbolic definitional conditions?":icon_mrgreen:

 

[PL1957]

No, he is not correct, because this is a market value purpose appraisal. The OP stated his research shows short sales coming in on average 50% below MV prices.

Since, this is a MV appraisal, why would it be correct to come in below MV for the opinion of value, when the comps and research show a MV higher than the contract price?

The fact that the subject has a short sale contract does not make this a "Short sale value" appraisal, the purpose of the appraisal, per the OP, is to arrive at a market value opinion.

(See the post just above this, by G Hatch)

I hate to break it to you, but apart from the MAI trash talk, George and I have the same position.

 

[J Grant]

You have a reading comphrension problem!

The point is, this is a MV purpose apprasial, not a "short sale value" or "distress sale value" appraisal. His comps are coming in at a higher value, so how would you justify coming in at a much lower value than the comps (a lower value would be the contract price), since this is a MVO appraisal?

 

[PS111222333444]

To GH: I very much appreciate your comments and insight. I must say though, that I have had the MAI reference and 35+ years of experience thrown in my face with each assignment over a lot of years and it is getting a little long in the tooth... I look with admiration and for guidance from my mentors, but it is not in my best interest to simply accept their word as appraisal Gods.

 

[residentialguy]

As for short sales and REOs sometimes that's a factor and sometimes it isn't.

Easy to find out. Do the SCA like it's not a factor. If it's still low, then it's a pretty good indication that it is a factor.