Short Sale v. Market Value

[Deleted member 134708]

Hypothetical Assignment:

Residential neighborhood with plenty of comps. Short sales and REO's sell for $20K less than non. Assignment is to "ascertain market value." It is listed on MLS as a pending short sale. This assignment isn't for a sale, just market value.


Example 1: Zillow/realtor/bank tells them house is worth $390K they owe $400K. If it was a refi, I pull all conventional sale comps and value is $410K.

Example 2: I pull all short sale comps and value is $390K.

If both types used, do you adjust the short sales or conventional ones if $20K is proven differential?

How would you treat it? As a market value "refi" or market value "short sale."

 

[J Grant]

I'll address this in a bit when have time

 

[J Grant]

Hypothetical Assignment:

Residential neighborhood with plenty of comps. Short sales and REO's sell for $20K less than non. Assignment is to "ascertain market value." It is listed on MLS as a pending short sale. This assignment isn't for a sale, just market value.


Example 1: Zillow/realtor/bank tells them house is worth $390K they owe $400K. If it was a refi, I pull all conventional sale comps and value is $410K.

Your mistake is pulling comps by sale type. If you are doing a conventional sale and REO or short sales are present, why not pull some of those as well, if they are competitive/comparable to the subject properties? Your assumption that the highest price sales represent "market value", but remember that market value definition is most probable price, not most probable highest price (though there are times the most probable is also the highest). If there are a number of short and REO sales in an area, it means something, and even if you decide not to use any of them, they should be included in the analysis.

Example 2: I pull all short sale comps and value is $390K.

How would you treat it? As a market value "refi" or market value "short sale."

Just because a subject is short sale status does not mean we pull only short sales as comps. On ALL market value purpose assignments , no matter who owns the property or status of property , we start by pulling the comps most similar to subject as property type and condition etc, then start working through ownership or sale type to see who typically motivated buyer for subject might be, what type of properties would they consider, how terms of sale are impacting prices and at that point we might include or exclude certain sale types .

We DO NOT search solely by sale type, at least not initially in MV purpose appraisals. If subject is an REO owned, we dont' search only for REO owned etc.

 

[Deleted member 134708]

@ J Grant:

Completely see and agree with your reply.

Say you have 4 model matches, two short and two conventional. The short sales sell for $20K less with the only difference being bank set the price. Would you adjust $20K to the short sales or $20K to the conventional. (or say two SS & 4 non, showing a $20K difference due to type of sale)

 

[J Grant]

@ J Grant:

Completely see and agree with your reply.

Say you have 4 model matches, two short and two conventional. The short sales sell for $20K less with the only difference being bank set the price. Would you adjust $20K to the short sales or $20K to the conventional. (or say two SS & 4 non, showing a $20K difference due to type of sale)

OMG ya killing me...disclaimer, I can't appraise over the internet! I can only provide some scenarios how I might decide....are there more short sales or more regular sales? What are the marketing times of each? is the market stable, increasing, or decreasing? What is the inventory like? (all that might help me decide where to arrive at price, whether to use certain sales, I might eliminate one SS and use just one SS and 2 regular sales, for example, depending on what research shows)

It is rare for older houses to be exact same even when model matches...is subject more similar to which comps in features/condition/upgrades?

The reason we might see REO comps used on an REO owned property in a MV purpose appraisal, for example: subject is in fair condition/needs repair, the most similar fair condition/need repair sales happen to be REO owned.

Short sales have different reactions in different markets. In my area, often the SS sells for equivalent $ to non short sale. But if you see a clear 20% difference on nearly every transaction, then your market is different and I might be less inclined to opine toward the lower SS price, depending on why they are selling for less and competition to subject etc. Why are they seling for less...long or delayed closing times? Why? Ask RE agents etc. look at days on market for each sale type.

 

[KnoxTalk]

"It is listed on MLS as a pending short sale" The assignment is to appraise subject property, which a short sale. From your market analysis there is a market reaction to short sale properties. You said $20K. I would use a blend of short sale, arm length sales and adjust accordingly. If subject was not a short sale I would use only arm length sales.

 

[J Grant]

"It is listed on MLS as a pending short sale" The assignment is to appraise subject property, which a short sale. From your market analysis there is a market reaction to short sale properties. You said $20K. I would use a blend of short sale, arm length sales and adjust accordingly. If subject was not a short sale I would use only arm length sales.

Why? We are not supposed to pick comps to match who owns the subject property. ( subject is an REO, use REO sales, for example: WRONG. Subject is a short sale, throw in some short sales. WRONG). We might end up using REO comps for REO owned suject, or Shor sale comps on SS subject, but there would have to be good market driven reason for doing so. (as opposed to picking sale types to match who owns or is selling subject.

Conversely, if subject is regular owned, and IF similar properties that are short sales and REO are competing with it, why would you not consider them, at least in first round of pulling comps?

 

[J Grant]

People also fail to analyze why certain sales are there in the first place. If a subject market area /subdivision has enough short sales or REO activity to matter, the first question is, WHY? What is the back story, why are those sales occurring? The next step is to look at current inventory....are the # of short or REO listings the same, increasing, or decreasing? The inventory and market trend can help determine where to reconcile or what comps to use.

Ask who your typically motivated buyer for subject is, based on subject condition, features etc, and what that typical buyer also consider SS or REO owned similar condition and feature properties?.

No matter which comps we end up using, if there are enough short and REO sales to matter, we have to analyze why. Do they compete with subject and why or why not, what are the buyers for them are doing with them, etc.

 

[Lee Lansford]

Appraise the property (that is, the property interest) for its Market Value.

Does it matter who the owner is or the motivations of the parties when appraising for Market Value? No, it does not matter.

Let the folks know what the MV is. What they choose to do with this information is their business.

 

[KnoxTalk]

IMO when appraising for a market value all the factors that impact subject have to be taken into consideration. Subject property is a Short Sale. The Short Sale factor has an impact on its value and has to be taken into consideration. According to original post, the factor is $20K. There is a market reaction. Some buyers do not want to buy short sale properties. This is a known fact, and I know this from real estate agents.