Subject is a Short Sale

[gregford]

Hello Everyone, Will anybody confirm with me and give me some oversight on this?
I have a market area that is REO driven. And I find that there is a market derived difference between a property that is a REO-Short Sale vs Arm's Length Transaction. When I have a subject that is not under duress(arm's length transaction), I would use a market derived adjustment if I had to use a comparable that is an REO-Short Sale.
However, when I am appraising a property for a borrower in a purchase of a Short Sale, do I adjust the comparables that are arm's length transactions down with the same market derived adjustment. Thus comparing apples to apples and oranges to oranges.

I get hung up with the definition of Market Value "The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

I suppose I am doing the right thing by subtracting the adjustment from the arm's length transactions comparables because in this instance the seller is acting in their own best interest, knowledgeable, & motivated? However with another seller that is not under finacial duress, then I would not make the adjustment to Arm's length Transaction (comps.)
Thank you for your help, Just a little confused in this market and needing confirmation.
Greg

 

[Lee Lansford]

If you're being asked to appraise for Market Value (Fannie definition)...appraise for Market Value (Fannie definition).

I don't see anything in Fannie's definition that states "if the owner is in 'this' predicament, appraise 'this' way, if not, appraise 'that' way".

The client may need for you to develop and communicate more than one defined "value"; check with your client.

 

[gregford]

Okay. Thank you. So, I am appraising for Market Value (Fannie definition), thus I assume that the seller is not under financial duress and do not adjust for differences because my client wants to know what the value is when the seller is not under duress (assuming) is prudent, motivated, and knowledgeable. This would make my appraised value higher than the defined market value. In the reconciliation of values, I would give a market value that is higher than the purchase price in contract (because my adjusted comps are higher than the purchase price = support) and is due to the seller being a short sale? This makes sence to me...!!!! Thank you for your input!

But it makes sense when the subject really is an arm's length transaction(no financial duress) in a REO driven market to have REO comparables (no choice) given a MARKET DERIVED ADJUSTMENT? This way according to market value definition, seller and buyer are not under any duress. apples to apples and oranges to oranges
Thank you,
Greg

 

[stach]

The client may need for you to develop and communicate more than one defined "value"; check with your client.

Well put. This is why the REO form has multiple values.
If your market is distressed driven then that's what your comps will be. & if that's the case no adjustment needed, it's already in the market price. Just "put it in the addendum"!!!

 

[Lee Lansford]

... This would make my appraised value higher than the defined market value.

...

Sort of an oxymoron, yes?

 

[gregford]

I meant that this would make my appraised value=defined market value higher that the purchase price....

And, yes, I do have some market areas that are REO driven and do not show a market derived adjustment.

I have clarity!!! Thank you

 

[residentialguy]

I have a market area that is REO driven. And I find that there is a market derived difference between a property that is a REO-Short Sale vs Arm's Length Transaction. When I have a subject that is not under duress(arm's length transaction), I would use a market derived adjustment if I had to use a comparable that is an REO-Short Sale.
However, when I am appraising a property for a borrower in a purchase of a Short Sale, do I adjust the comparables that are arm's length transactions down with the same market derived adjustment. Thus comparing apples to apples and oranges to oranges.
Greg

Good question. It is an understandable struggle that you're having. Just remember that the only apple to apple you need to make it MV. It doesn't not matter if the subject is a REO or SHORT or a sale between relatives. You are finding the most probable price the subject would sell for as a traditional arms length sale. It is usually best to use good traditional sale comps verses REOs/Shorts (due to all the unknowns). They should be considered and they can be used...but they need to adjusted for any market variance they have compared to a traditional sale.

 

[Mile High Trout]

I meant that this would make my appraised value=defined market value higher that the purchase price....

So what?

"The problem with appraisers is that they quit grinding, once they satisfy the client."

Either the owner is getting instant equity, or they are not. Opportunity for instant equity is all over the place in distressed markets.

http://appraisersforum.com/showthread.php?t=166610

 

[Smokey Bear]

Duress is a legal term with a legal definition: duress n. the use of force, false imprisonment or threats (and possibly psychological torture or "brainwashing") to compel someone to act contrary to his/her wishes or interests. If duress is used to get someone to sign an agreement or execute a will, a court may find them null and void.

How is this involved in a short sale or REO sale?

 

[Mile High Trout]

How is this involved in a short sale or REO sale?

Distressed sellers create bi-modal markets.