USPAP Question About Value Estimate In Relation To Recent Sale

[George Hatch]

Gotta love those living breathing interpretations.

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What's the typical height of Americans? Is there an external benchmark or is "typical' used in relationship to the group in question?

What's the typical exposure time for real estate? Is there an external benchmark or is "typical' used in relationship to the group in question?

You can frame the question in the same terms for virtually any type of group and the answer will always be related to the group in question and not to some arbitrary and immovable external point.

 

[George Hatch]

And BTW, when someone uses a term like "appears" that's actually a form of accuracy in that they're relating both what is apparent to them as well as the limitations of that observation. Not to get all philosophic about it, but we can only "know" what we actually know. The disclosure of our own limitations is simply the clarification.

 

[Terrel L. Shields]

i have many others in my files that contradict your statement.

Perhaps, but in my experience when the fit hit the shan, ALL our local banks were desperate to shed themselves of same, and two I know of had a letter from the FDIC telling them they had 90 days to shore up their books. One did by dumping property - the other didn't and was taken over whereas the FDIC sold the lot to a LLC of money men who then proceeded to dispose of it piecemeal and at above REO rates. One group made so much money off the REOs, they formed a Holding Company and bought out another bank.

As for condition, many were in bad condition, but sometimes, the best of the lot were cleaned up and given a detailing (wash, paint, deep clean) before selling. Much of the work in one bank was on Saturdays by the LOs and loan staff themselves. But I cannot think of many, if any, REOs here in this MSA that were competitively priced with properties owned by others. Yes, many offered at market rates took much longer to sell, but even the Homepath ones were selling below market. There were plenty of arms length sales to use except in some of the small towns where old 50+ year and low quality housing was sold and virtually none of it was offered by the owners. It was all short sales and REOs. These brought less than 50% of their sales prices often, and that market rebounded like all the rest in 2014. From 2009 - 2013, few sold for the simple lack of financing. Same for rural manufactured housing. It has come roaring back.

 

[ucbruin]

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.

Glenn, Glenn, Glenn....
I agree with you regarding the term "weasel"....
That term was initially used by JGrant...
I was being facetious....
I think the term weasel is offensive used in the context of her post....

 

[Terrel L. Shields]

Weasel is very offensive to a mink or fisher when used against them.

 

[residentialguy]

And BTW, when someone uses a term like "appears" that's actually a form of accuracy in that they're relating both what is apparent to them as well as the limitations of that observation. Not to get all philosophic about it, but we can only "know" what we actually know. The disclosure of our own limitations is simply the clarification.

George, it's a bar/standard. If you allow it to move freely, then if can vary day to day and no one knows what typical means. Market value equals liquidation

 

[Terrel L. Shields]

you allow it to move

I wouldn't go that far as "appears" is commonly used in home inspections and environmental inspections. We cannot know some things, but only believe it so. The absence of evidence is not the evidence of absence. It is a form of assumption, not necessarily an extraordinary one, one we might relate to most assignments. I know the foundation holds up the house, but I don't know if the concrete used tested the #3,000 load strength minimum.

 

[George Hatch]

What do you mean allow it to move freely. We don't "allow" the market to do anything - we simply watch it and report it. What we're not supposed to do is "curate" the data in order to prop up the pricing of the outlier sales.

"Most probable" has a meaning, and that meaning does not consist of the small minority of outliers.

And FWIW, I done a number of appraisal assignments that included an MV and well as a Liquidation Value and/or Disposition Value and ended up with the same number for all 3. Which occurs when the "typical" exposure times are within the arbitrary time frames. This has occurred most often as the market is transitioning into a boom phase.

 

[George Hatch]

But fine, if you really think "typical motivations" is confined to the very limited range then you should be applying the same limitations in the hot market. In that hot market you shouldn't be using any of the sales where the buyers were unduly motivated beyond your benchmarks.


I've never seen any appraiser do that, and you won't even acknowledge that as being the consistent application.

How about this? When in doubt you can quantify and report it both ways and let the readers decide for themselves. So when 35% of the listings are producing 90% of the closed sales the most probable price for that dataset is $x and the most probable price for the remaining 10% of the listings is $x.

You won't do that, either; because you know and I know and everyone else knows exactly which value conclusion is going to be more meaningful to the decision at hand.

 

[residentialguy]

But fine, if you really think "typical motivations" is confined to the very limited range then you should be applying the same limitations in the hot market. In that hot market you shouldn't be using any of the sales where the buyers were unduly motivated beyond your benchmarks.

I'm not taking such a hard stance as to not include any market movement due to the current atmosphere variances of the current occupied owners...but when you go so far as to allow abnormal to become the benchmark for normal and the normal to be abnormal, you defeat the whole purpose. For example, REOs encompass 55% of the market and sell 15% lower than the typical occupied homeowner. So now, under your "living breathing" interpretation of "typical", therefore the homeowners are now atypical, so now all of the people selling their homes will have to be adjusted 15% down to reflect the 'typical seller" which are REOs. All of your deals will be killed or they have to adjust their prices to match the REOs, which have other influences affecting the price.

Problem 2 now appears: REOs can only sell if they price their vacant homes lower than what Joe is selling his house. So you adjust the sale, and they have to sell 15% lower. Oh, dear....now the REOs have to adjust their sale price again because the occupied sales are now 15% lower...so they lower their prices 15%. Oh dear...now we have to adjust those dang atypical homeowners again...and round and round we go...right down the toilet.

They have liquidation value for a reason. If you have a house that is an REO and they want to know the most probable price for a house under distressed selling conditions like an REO, give them that kind of value. If they want market value, as defined by FNMA, then remove the REO selling conditions and show them what a home occupied sale would sell for. If they are selling for the same price and end up being the same value, I have no problem with that; that's what the most probable price the homeowner could sell his/her house for.