USPAP Question About Value Estimate In Relation To Recent Sale

[Terrel L. Shields]

. I simply explained why that comp was not a reliable indicator of market value.

Exactly....otherwise we need to appraise each Comp, in turn, the comps supporting those "appraisals" and down into the abyss of infinity. We are not calculating a formulaic response or computers would have replaced us 15 years ago. We are expressing the heuristic of our research, judgment...a calculation is not judgment, it is a calculation. Deductive and inductive reasoning. There is no such thing as proof — there are only conclusions drawn from facts and observations.

From the fact of the sale we reason by our past observations, that this indicates a non-arm's length transaction.

 

[residentialguy]

No, but your report results could be skewed ( not that you care) because you decided REO's "sell below market value " , which then leads you to not use them in appraisals, ( you've posted numerous times you won't use them, and if you do, you adjust them "up" to your target of market value as higher than an REO sale)...while AI, Fannie, FHA, and in my continuing ed, most recent USPAP FAQ, says if needed for credible assignment results an REO sale use as a comp. (with no rote instruction to always adjust them "up" .(.though we would adjust them up if the market data indicates )

Your opinion on millions of properties led you to take a predetermined position in a value direction (MV, higher than than any REO sale simply because it is an REO sale) in your appraisals.

You're just being hostile and blowing out comments that aren't supported. Of course I care. The fact is that REO's do not fit the definition of Market value. They are a distressed sale...and I don't mean physical condition, (which are often a case, but that would be a physical condition adjustment on top of the seller being in distress), hence why the appraiser should adjust it "up" if the market data does indicate that variance....and a lower sale price would be market evidence.

But take REO out of the picture. Let's say that it is a hostile divorce sale. Same thing. Comps 1, 2, 3 sold for $500k. Similar comp 4 sold for $450k. It sold below market value because of the conditions of that sale setting and is not reflective of what that house would have sold for in a typical sale, as defined in market value.

 

[Terrel L. Shields]

No REO (aka ORE) can meet MV definition. The seller wants it off the books. Motivation isn't equal.

 

[J Grant]

Fair enough I took out the dont care comment. However, an REO sale can fit the definition of market value as a sale , since numerous advisory opinions advise they can be used as a comp , as opposed to a "distress sale"...if an REO is exposed to open market and bought with conventional financing terms it is a sale like any other that can be used - if its price was affected by any "stigma" of being an REO then that would be adjusted for, but that is not always the case...sometimes the fact that REO's are in the market and are being purchased means the "market value" (opinion ) could be lower...it's a case by case basis in each appraisal

Same with an sale - hostile divorce if it sold for 450k and other comps for 500k, likely the 450k sale should not be used because clearly its price is affected by one party ( seller ) being very untypically motivated. However if one used it as a comp then it would get less weight since it is the only sale to get such a low price.

 

[J Grant]

No REO (aka ORE) can meet MV definition. The seller wants it off the books. Motivation isn't equal.

Oh no we are going to have to recycle the same argument already done a zillion times AGAIN? Please no....You are "worse" than Res Guy for same reason I just posted to him...PS motivations do not have to be "equal" since there are a range of motivation of parties in transactions. Mitigating factors to their motivations is open market exposure and supply and demand. While REO sellers want the properties off the books, any individual seller facing BK, divorce, illness, job loss can be even more motivated to get a property off their back. When a lender places an REO with an agent on MLS, the fact that it is exposed to open market and the universe of buyers for properties in that area mitigates the seller's motivation. And when many sellers in a market are lenders holding REO properties, then their motivation does become more typical of that market cycle.

Granted, there are many times an REO property can sell on the lower range, what that means and whether to include or exclude it as a comp can vary, of course there are many appraisals where using an REO sale is not appropriate. But that is found in developing the appraisal, not a rote predetermined decision from the appraiser .

 

[residentialguy]

Same with an sale - hostile divorce if it sold for 450k and other comps for 500k, likely the 450k sale should not be used because clearly its price is affected by one party ( seller ) being very untypically motivated. However if one used it as a comp then it would get less weight since it is the only sale to get such a low price.

You're just doing a round about to say that same thing by "giving it less weight". You adjusted it $50k without adjusting it on the grid.

I'll refrain from going off topic and making this a REO argument. I'll just say that if it sold for the same price, then the REO wouldn't be adjusted. If it didn't, then it being an REO sale was a factor and should be adjusted to reflect what the house would have sold for if that "stigma" (as you say) wasn't present.

 

[J Grant]

USPAP says an appraisal assignment needs a workfile. But USPAP also defines an appraisal as an opinion of value ( and an opinion as an appraisal ). So when the appraiser makes opinions based on a numerical benchmark, market value is lower than or higher than a sale price, sale type such as REO, a past sale 8 years ago etc, the appraiser has done an appraisal by making that opinion- and appraisers have to be USPAP compliant when doing an appraisal.

Which can get ridiculous I agree...do we turn ourselves in to the state board by making an unsupported opinion in our own mind ? I don't think any of us would do that expect Mike Kennedy ( kidding , )....but one can see how ding that can make us can skew our own assignment results by making unsupported or poorly supported opinions around benchmarks or targets because we then don't go on to test our opinions in the market data for the appraisal as we develop it.

Imo we all need to watch out for that... for example sometimes I will start an assignment thinking certain things or even that the subject "should" be worth this or that...then my own appraisal development and research shows me my initial assumption or prejudice or idea around a property or price trend is wrong- and I gladly change it at that point.

 

[residentialguy]

USPAP says an appraisal assignment needs a workfile. But USPAP also defines an appraisal as an opinion of value ( and an opinion as an appraisal ). So when the appraiser makes opinions based on a numerical benchmark, market value is lower than or higher than a sale price, sale type such as REO, a past sale 8 years ago etc, the appraiser has done an appraisal by making that opinion- and appraisers have to be USPAP compliant when doing an appraisal

Okay, they did an "appraisal" So what? As long as it is not misleading, where does that violate USPAP? USPAP isn't making it ridiculous...appraisers misconceptions about USPAP are.

 

[Terrel L. Shields]

PS motivations do not have to be "equal" since there are a range of motivation of parties in transactions.

No bank wants REOs. It counts against their reserves.

After 2009 prices recovered slowly at a small to modest annualized rate, name an REO that was flipped within two years for 20-50% or more. I don't think you will find a one in our MLS from 2009 on. The REOs today may only be 10-20% below market sales, but they are still below market...

 

[J Grant]

But take REO out of the picture. Let's say that it is a hostile divorce sale. Same thing. Comps 1, 2, 3 sold for $500k. Similar comp 4 sold for $450k. It sold below market value because of the conditions of that sale setting and is not reflective of what that house would have sold for in a typical sale, as defined in market value.

You and I would have different reasons for not using comp 4 or weighting it less, or in your case adjusting up the 450k divorce sale. You conclude it "sold below market value", I conclude it sold below other similar property prices. Sounds almost the same but it's not the same. Because I don't know where numerically, ( $ amount ) or what value direction ( lower, higher or mid range ) my market value opinion is yet. That comes at the end of the appraisal.