USPAP Question About Value Estimate In Relation To Recent Sale

[J Grant]

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.

because if the "appraisal " ( opinion we made, even to ourselves ) is unsupported or not credibly supported, it can lead to misleading assignment results...which does violate USPAP. That's why we monitor and filter and queston our own thoughts and conclusions and opinions as we develop an appraisal ( am sure you do it too) ...

 

[residentialguy]

because if the "appraisal " ( opinion we made, even to ourselves ) is unsupported or not credibly supported, it can lead to misleading assignment results...which does violate USPAP. That's why we monitor and filter and queston our own thoughts and conclusions and opinions as we develop an appraisal ( am sure you do it too) ...

Did you miss the part in my post that stated "As long as it is not misleading"???

 

[residentialguy]

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.

So you have four identical homes, 3 sold @ $500k with typical motivations. One sold at $450k with atypical motivations from a divorce sale. You opine that the MV is $500k...how can you conclude anything but to say that the conditions of the sale affected the sale to sell below market value, 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, 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: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) 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???

 

[J Grant]

So you have four identical homes, 3 sold @ $500k with typical motivations. One sold at $450k with atypical motivations from a divorce sale. You opine that the MV is $500k...how can you conclude anything but to say that the conditions of the sale affected the sale to sell below market value, 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, 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: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he considers his own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) 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???

Above you say comp X sold below MV after your appraisal- but with REO sales, you are made an opinion about them before doing an appraisal ( REO's sell below MV- -therefore I avoid using them as comps)

Its better to say Comp 4 's sale price was affected downward by atypical seller motivation, rather than say it sold "below market value" Because "Market value" of X $ is your opinion for the subject, not a benchmark in the market

 

[J Grant]

if I am searching for comps and assuming lucky enough to have all identical homes to subject and only differential is price, I find 3 at 500k and 1 sale X at either 450k or 550k, then sale X whether high or low is an outlier and sold for a atypical motivation or terms of sale.. If possible I'd rather go back over a year and use as fourth comp an older sale and make a time adjustment if needed. If I go back 18 months and find identical home sold for 470k and prices were lower then, the 470k sale sold for MV terms and a time adjustment brings it to 500k range, making it a good comp. Or I might go slightly outside the area and use a similar sale to show it's not just a fluke 3 buyers paid 500k and X sale is low/high because here is a fourth sale comp adjusted for larger lot with an adjusted price of 510k (for example).

When we say a comp sold " below or above" market value, we took our opinion of market value for subject out of its intended use, (for the subject) and extended it as a benchmark of MV into a universe of other properties.

 

[J Grant]

Directed at no one in particular...it's easy for us to start letting popular vernacular creep into our reports...( but more significantly, into our thoughts )

RE agents, owners, lenders everyone else can run around saying this property sold at market value or it sold below market value or it sold above market value. They are allowed because they are not appraisers; every time they utter an opinion of MV, including as a benchmark relationship, they have zero obligation to develop an appraisal for their opinion ( but we do )

We might have MV as a concept. Fine. But when we codify it into a number or benchmark we've done an appraisal. If we communicate it only to ourselves we may not "get in trouble" for not supporting it - however, it can lead to trouble for our appraisal. Such as when we use our own poorly supported opinion to develop further opinions, including value / other conclusions .

For example, It can keep us from considering data or trends that don't conform neatly with the opinion we made in our head that was in fact poorly supported. Such as what do we do when we find data or trends to be contrary to our precious opinion?.

I've had happen -I start an appraisal thinking X, and then find in research that X indeed is not the spot, Y is....boo hoo means more work and put aside my own attachment to X as result.

 

[George Hatch]

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...

"typical motivations" are what's typical for a given market at that time; it's relational. When REOs drive a declining market then that's what's typical. When an entire town has sellers who have to sell because the plant they worked at just closed down and they can't afford to stay then that's what's typical. When Airbnb buyers from California are bidding the prices up then that's what's typical. When timeshares are being sold over the phone then that's what's typical.

 

[J Grant]

"typical motivations" are what's typical for a given market at that time; it's relational. When REOs drive a declining market then that's what's typical. When an entire town has sellers who have to sell because the plant they worked at just closed down and they can't afford to stay then that's what's typical. When Airbnb buyers from California are bidding the prices up then that's what's typical. When timeshares are being sold over the phone then that's what's typical.

Exactly. Part of "typical" is that other buyers and sellers, like it or not, have to deal with the trend in the market.

If there are a greater amount of REO's and/or short sales around, the other sellers of similar properties have to compete with them.

And when prices are driven up such as if cash rich Airbnb / foreign investors enter the market, then other buyers for similar properties have to compete with them.

 

[J Grant]

Back in the day, it was taught the "typical" /typically motivated was a person or couple not under any pressure to move or buy or sell, looking (in residential) for a long term place to live.

That is outmoded because as GH said in his post 66, "typical", can change according to changes in the market, and who the dominant trend buyers and sellers are- not who we wish them to be.
Price in the MV definition is the "most probable" , in order to accommodate the wide range of "typical". A "most probable price " for a property can be a low, high, or mid range $, depending on many factors.

When an appraiser pre decides to exclude a category of sales, such as REO sales because they (in their opinion) "sell below market value", that appraise has "set" market value to a higher level, than it actually may be. The reverse happens when appraisers mistakenly believe they should only use REO sales because subject is an REO- that appraiser may be setting the MV $ lower, due to their decision to use only non REO sales.

We can during the SOW decide to include or exclude any kind of sale, including REO , but it should be because relevant trends / competitive market activity indicates it, rather than our own predetermined idea or notions about it.

 

[J Grant]

Me no likey when a dominant trend player in an appraisal I am doing are property flippers. Means extra work and analysis among other things I may have to cost estimate before and after and look at comp sale transactions when the flipper bought it low and again when they sell it high. Me no likey. Poor me and boo and hoo. We have to deal with the real world, messy buyers and sellers participating in our subject relevant market area and property type.

Some of you apparently dislike it when a trend player consists of of REO activity...boo and hoo on that as well ! Do your job and deal with it, don't decide to use only REO nor exclude REO for a pre conceived idea of how low or high market value "should be."