USPAP Question About Value Estimate In Relation To Recent Sale

[Terrel L. Shields]

"typical motivations" are what's typical for a given market at that time; it's relational. W

Ask bankers if they think they are typically motivated within the MV definition.

When 90% of sales are REO and 10% are typically motivated between real sellers and buyers and those 10% are bringing 30% or more money, then they are the uncompelled market. And again, no year saw prices jump 30+% annually. But most REOs were flipped for 30%+ here. Lot prices even more. A bank was selling lots near me for $10,000 each as late as 2014, and now they are being resold for $22,000. That is not a normal appreciation, rather arbitraging a windfall.

 

[J Grant]

Terrel L. Shields, post: Ask bankers if they think they are typically motivated within the MV definition.

The MV definition, deliberately does not define what comprises "typically motivated ". That's because it's meant to be an umbrella to encompass the wide range of motivations present of buyers and sellers. It;s up to the appraiser to determine FROM THE MARKET what comprises "typically motivated" for a subject.
When 90% of sales are REO and 10% are typically motivated between real sellers and buyers and those 10% are bringing 30% or more money, then they are the uncompelled market.

If you take it upon yourself to ignore 90% of the market and proclaim the t0% "typically motivated", that is misleading. REO homes, if exposed to open market and allowed a reasonable marketing time and no special financing or terms present, their sale met the definition of a MV transaction. If their prices are lower than "other sales" that can be due to their physical condition or other factors, including that if lots of REO properties are present , the typically motivated buyer for them can be investors and flippers whose goal is to pay as little as possible.

When 90% of the properties are REO owned, their sellers have the typical motivations for that market segment. The question is why 10% of houses are selling for 30% more .. Are the 10% flip sales? If so, were they repaired or upgraded ? If your subject was repaired and upgraded by a property flipper, it's comps are the other 10% that have been flipped /repaired.

But if your subject is original /same dated condition to the other 90% ( assuming the 90% are in dated condition), then those REO similar condition properties are competition for subject property.

Note, If all the properties were in the same dated condition and 10% of buyers paid 30% more for the sole reason the dated condition home is not REO owned, the 10% buyer overpaid, rather then the other 90% sold "under market"

As long as the terms of sale are MV terms, no matter who owns the property, it is a MV term sale. Who owns the property can vary widely, from a private seller to a spec home builder to a national builder to a flipper to a bank . How each of their homes, if exposed to the open market when listed / offered is the subject of our appraisal.

The terms of sale, not the ownership, is what determines if the sale was MV, LV or DV for analysis purpose. A private owner can be under compulsion to sell in a limited time frame and the property not given adequate market exposure nor advertising effort. It was the terms of sale and market exposure, not the ownership, that qualifies a transaction as meeting a value definition.

 

[ucbruin]

The MV definition, deliberately does not define what comprises "typically motivated ". That's because it's meant to be an umbrella to encompass the wide range of motivations present of buyers and sellers. It;s up to the appraiser to determine FROM THE MARKET what comprises "typically motivated" for a subject.

That's because appraising is about employing "weasel words".

The industry's safety net....

 

[J Grant]

lol good one !

"Typically motivated " is a broad/ umbrella term to compass the possible range of typically motivated for any specific property and market, ( not a weasel word.)

Compare : The typically motivated buyers for dated condition properties in subject market area are mainly investors .

With The typically motivated buyers for dated condition properties in subject market area appear to be investors .

Weasel world appear- what does that mean? The buyers are holograms or chimeras? They are not human or real? It's a CYA word but kinda silly...

 

[George Hatch]

In my region where the prices are too high for a lot of cash sales, once the REOs get to about 30% of the market they drive the pricing. At that point there is no second tier that is solely attributable to seller motivations. The oversupply of inventory that occurs at the same time leaves the buyers with plenty of alternatives so the principle of substitution takes over. In an oversupplied market only the most motivated sellers *ever* sell - the rest of the listings just sit on the market.

That obviously changes if/when the seller has an arbitrary 30 or 90 day marketing time in a market that normally has longer exposure time; but that applies to all sellers, not just the lenders. As well, in an oversupplied market the buyers will hit a property very hard for physical conditions; but again that applies to all sellers, not just the lenders.

Now all markets are local, but in order for a rule to actually be a rule it has to apply all the time and in all comparable situations. So in order for "typical motivations" to have the fixed and external benchmarks as opposed to being relational in comparison to the others it would have to apply all the time.

But IRL that's not always the case.

As another example, in a super hot market only the most aggressive buyers - the most motivated - will get the properties. These are the buyers who have to buy, regardless of the reason; otherwise they wouldn't be buying at these prices. That's what passes for typical motivations in an undersupplied market. The definition of "typical" doesn't stop applying just because we're talking about the buyers' side and not the sellers.

 

[ucbruin]

lol good one !

"Typically motivated " is a broad/ umbrella term to compass the possible range of typically motivated for any specific property and market, ( not a weasel word.)

Compare : The typically motivated buyers for dated condition properties in subject market area are mainly investors .

With The typically motivated buyers for dated condition properties in subject market area appear to be investors .

Weasel world appear- what does that mean? The buyers are holograms or chimeras? They are not human or real? It's a CYA word but kinda silly...

Term "weasel word" was your contribution.....

CYA statement is the cornerstone of all appraisals.....
USPAP language can be ambiguous and vague.....
FHA language can be ambiguous and vague....
Ambiguous language appears to be deemed a must....
I'm sure that one of the 1st appraisal concepts a mentor teaches his/her trainee is the concept of CYA statements....
Appears/deemed to be/depends/assumed/etc....

CYA or weasel words (whatever that means) is probably littered throughout your reports....

 

[residentialguy]

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

Better for those that don't understand USPAP maybe.

 

[Carnivore]

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

Some REO's are sold as-is or as-repaired or sometimes somewhere in between; partially repaired i.e. from C5-6 to C4 FNMA sells REO's like this. It just depends. They do not dispose of their REO's like HUD, BOA or some other Banks do! Not even close. So that being said they are known to dispose of a property as-is. I can think of some examples i have in my files where it meets your statement. i have many others in my files that contradict your statement. All together I estimate I have about 1,200-1,400 FNMA REO files. I wont take the time to give you an exact number. So they are an exception.

 

[residentialguy]

"typical motivations" are what's typical for a given market at that time; it's relational.

Gotta love those living breathing interpretations.

 

[glenn walker]

That's because appraising is about employing "weasel words".

The industry's safety net....

I would not consider the word "typically motivated" to be a weasel word and since I also been a broker for over 30 years most of our investors , both buyers and sellers often hold their cards close to their chest , and I only discover their real motivation when we open escrow or close the transaction. In reality the real motivation shows up in the sales price and the final numbers tell the entire story.

Then there are appraisers that don't use weasel words but sometimes use Glittering Generality's and throw in the word Non-Sequitur, that's where illogical or irrelevant statements can be used but it sounds much better than old tired over-used weasel words.