Short Sale / Market Value

[Joyce Potts]

Back when the Fannie and Freddie invoked the defintiion of MOST PROBABLE SELLING PRICE as the defintiion of Market Value, which by the way has changed over the years, no body even knew what a short sale was.

For the 4,754th time: If the property started out as an arm's-length offering, had adequate market exposure and failed to achieve a higher price at or in excess of the existing mortgages and finally found it's selling point in the open market, how is that not an example of the Principle of Substitution?

Stop qualifying comps primarily by price and analyze it on a case by case basis and on their own merits.

If short sales typically involve longer approval periods and excess complexity in getting them closed, that is the major distinction for me. But this traditional vs. distress sale discussion with the across the board answer is ludicrous. Again, I've had short sales that sold HIGHER than so called arm's-length sales. That's not typical, but it has happened in my market.

Beat that dead horse some more!

 

[residentialguy]

Joyce....they are thrown on the market at an unrealistic prices. As you stated, SSs are a PITA to buy. Very few like to wait & wait & wait just to find out that the bank doesn't except the offer. Some buyers are willing do that...but at a price; price reduction, that it. Can they sell at typical MV or higher? Sure, so could a sale between a mother and daughter.

 

[J Grant]

SS are not thrown on the market at unrealstic prices, they have to be listed by agents, per the bank directive. The agents sometimes start out pricing properties too high, but they do that on almost all listings. Most times, the SS listing initial list price are in the range of competitive regular list prices.

If you see a price reduction in market due to length of marketing time and the market shows a SS needs adjusting, you can adjust for it, or weight it less, but that does not mean automatic elimination as a viable comp.

The fact that numerous short sales are occurring shows buyer acceptance of the negotiating process, which has been sped up in many cases due to banks becoming more experienced with the SS process.

In any event, the subject short sale status should not be entering into the value development of the appraisal. If there are similar competitive short sales as solds or listings, or REO sales and listings , they likely would be considered in the value development . For someone to adjust a comp sale down to the short sale status of the subject would not be adivsable.

 

[CANative]

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.................

I noticed you didn't ask me directly.

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...

he would absolutely never value above a contract sales price.

 

[residentialguy]

SS are not thrown on the market at unrealsitc prices, they have to be listed by agents, per the bank directive.

It is not uncommon for the shorts to be listed unrealistically for being a short sale. I called one recently about a high listing price and he admitted it wasn't to sell. It was to qualify for something else...the home just had to be on the market. I commonly see 25-50% variance from listing price to sale price on short sales. They may have marketed it at "market value", but they didn't sell at MV...and for good reason.

 

[PL1957]

"he would absolutely never value above a contract sales price."

Personally, I took that statement as hyperbole, since I doubt the OP would have the mind-reading skills to know that "absolutely never" is accurate.

My primary point was that you don't automatically disregard a contract on a property just because it's a short sale. My secondary point was "listen to the MAI".

 

[CANative]

"he would absolutely never value above a contract sales price."

Personally, I took that statement as hyperbole, since I doubt the OP would have the mind-reading skills to know that "absolutely never" is accurate.

My primary point was that you don't automatically disregard a contract on a property just because it's a short sale. My secondary point was "listen to the MAI".

I agree with your primary point completely. Which is why I disagree with your second point.

 

[J Grant]

"he would absolutely never value above a contract sales price."

Personally, I took that statement as hyperbole, since I doubt the OP would have the mind-reading skills to know that "absolutely never" is accurate.

I took the post at face value, it sounds like the OP knows this MAI well and that the man never appraises a property above contract price (or at least he never has known him to do so)

My primary point was that you don't automatically disregard a contract on a property just because it's a short sale.

We should not disregard a contract on a property just because it is a short sale, or REO sale, but on the other hand, regardless of the sale type of subject, we are not supposed to appraise to sale price as a target value.

My secondary point was "listen to the MAI".

Listen to the MAI when they are correct, but when they are corrupt, have the knowledge and integrity not to listen to them.

There were auditors who knew Bernie Madoff's statements were rigged, and they pled with officials to listen to them...they were dismissed since they were lowly auditors and Madoff was a prestigous power player.

Most MAI's are not corrupt, but when they are, they are corrupt as anybody else, and appraising to hit sales prices is corrupt appraisal practice, no matter how lofty the explanation.

 

[NorthTexValuation]

Please provide the definition of Market Value that is included in the Scope of Work.

 

[NorthTexValuation]

I might use the contract as a "tie-breaker" if it's within a reasonable range of the value indications I'm coming up with. Frankly, I don't pay much attention to the contract until I'm finished.

Nice to see a little common sense in this forum once in awhile.