Appraisers' Free Forum

Steve Owen wrote:I'm not sure I agree that you should appraise the property at market value. It sounds to me more like the bank wants to know short sale or quick sale value. I'm not sure why you would have to have a contract to do that... although, it's always nice to get all the info you can.

I have re-read my post several times and cannot find the word "liquidation" anywhere in it. I don't disagree with what you guys are saying about liquidation value, but I don't think I am the person who raised the question.

Steve Owen wrote:

Steve Owen wrote:I'm not sure I agree that you should appraise the property at market value. It sounds to me more like the bank wants to know short sale or quick sale value. I'm not sure why you would have to have a contract to do that... although, it's always nice to get all the info you can.

I have re-read my post several times and cannot find the word "liquidation" anywhere in it. I don't disagree with what you guys are saying about liquidation value, but I don't think I am the person who raised the question.

Help me understand your concerns. I was the one that brought up market value, and I did it because Jefe is supposed to be analyzing a sale and has no information about it nor does he have any idea what the motivations of the seller are or what kind of duress the seller is under. The client ordered a liquidation value and is providing him no information what so ever. We are trying to figure out what liquidation value is and whether there is such a thing as an average liquidation value. Pretty tough, so I guess he just does the usual and closes his eyes and shoots. Actually we are going one better and arguing whether it is prices paid at foreclosure or at REO. My guess is that you get a more uniform procedure at foreclosure although the prices paid are going to be what the owners owed the bank. I don't think there is a short sale market.

The bank shouldn't be asking an appraiser how much they are willing to discount their notes to get rid of problems. This is a stall tactic, don't you think? What they are saying based on the activities of banks I am aware of is that they are considering taking less than they would bid at foreclosure. How can an appraiser help them with that? Are they asking what they might get at an REO sale?

Now if they want to know if the exposure time is short and the appraiser has enough data to calculate the difference between that and market value then I guess that might make sense.

Ah, hell, I lost my post somehow, oh well, I'll condense it. My original post was mainly to start a thread on the subject, I only referenced a particular assignment as an example and wanted to see what others were doing when a sales contract could not be obtained, in summary, IMNSHO an offer to purchase in a short sale is of no more value than an opening bid at an auction. I find myself more and more putting USPAP and URARs on the side burner and using the knowledge I've gained as a personal investor and broker, my brokers license has 1977 on it for whatever that's worth.

Edd Gillespie wrote:Help me understand your concerns.

I don't really have "concerns." Edd (other than the concern about being quoted saying something I don't think I said).

The only reason I posted what I did was to point out that sometimes clients don't want or need MV. Not sure about this case, but if your client is a bank who wants to short sell property, you might at least bring the issue up with them. Something like "Do you want me to appraise the property for market value or would you prefer to know quick sale value?" should do the trick.

I appreciate the questions you raised Jefe even if you didn't get a concise answer. We are professional experts and sharing our questions with other experts broadens the knowledge base of the profession. The questions experts deal with are important and are hardly simple. If the questions and the answers were simple then anybody could be an appraiser and nobody would need one.

Sure seems to me the discussion was relevant, but if you don't consider an offer to be a potential contract then why did you question how to analyze a short sale without a contract? You can't. You can analyze the market, but even then you have to be provided some kind of a frame, and I don't think you got one. Maybe you did, but you forgot to tell us what the frame is.

Edd wrote: We are trying to figure out what liquidation value is and whether there is such a thing as an average liquidation value.

Look in the Dictionary of Real Estate Appraisal, 4th Ed. It defines liquidation value and disposition value, as well as market value.

Knowing a set time frame for a liquidation value won't do you any good by itself. It has to be compared to normal market time to be relevant to quick-sale or disposition values.

In my market, normal market time is 6-12 months. Disposition usually requires 90-120 days with a 20% discount. Liquidation would be 60 days or less, and involves discounts from 25% to over 60% depending on the property, its location, and its condition. (That's a normal market, though. Not this one.)

Jim Plante wrote:

Edd wrote: We are trying to figure out what liquidation value is and whether there is such a thing as an average liquidation value.

Look in the Dictionary of Real Estate Appraisal, 4th Ed. It defines liquidation value and disposition value, as well as market value.

Knowing a set time frame for a liquidation value won't do you any good by itself. It has to be compared to normal market time to be relevant to quick-sale or disposition values.

In my market, normal market time is 6-12 months. Disposition usually requires 90-120 days with a 20% discount. Liquidation would be 60 days or less, and involves discounts from 25% to over 60% depending on the property, its location, and its condition. (That's a normal market, though. Not this one.)

Now that we have the definitions let's figure out where the data and data analysis comes from. It seems we may be advocating the use of a benchmark discount from market value. No? In terms of a duress sale, the closest I can find here are represented by REOs. Not so much because of duress but due some kind of strange compulsion on the part of the banks and the general discount does = @ 20% from market values. But, then those homes are going to investors and then resold at or close to market.

So whether it is called a short sale, disposition or liquidation, the appraiser needs to know the time frame the client is considering? Anybody found data for quick sales other than REOs?

Is it possible the client's "short sale value" can be translated to, "How much are banks getting for these things?"

Here's a nifty chart. Haven't verified the data, but it tells the same story. 20% +-. Click on it to make it bigger.

FAN REO’s client restricted marketing time is 90-120 days. Most lenders request 30 days. I recall one lender about 10 years ago that used to request a 10 day quick sale value in addition to reasonable and restricted times, 10 days is essentially a fire sale. They were mostly for doublewides.

For FAN REO I have some neighborhoods where the restricted marketing time and reasonable market exposure time are the same. There was a long name calling thread in the "other place" on that very topic.

I have one lender that demands that the current % of REO sales to be utilized as sales and listing for REO assignments. ie if the 2/3s of the sales similar to the subject are REOs, they want 2/3s of the comparables to be REOs.

Edd Gillespie wrote:So whether it is called a short sale, disposition or liquidation, the appraiser needs to know the time frame the client is considering? Anybody found data for quick sales other than REOs?

I’ve found some of the best comparables for quick sales to be “estate sales”, it helps that the MLS system has an entry requirement for estate sales.

I have never had an REO or short sale assignment that did not require 4 values, naturally on the REO supplemental addendum. I do have one (Chase I believe) that doesn't want the REO addendum, but still the 4 values and info from the addendum. A pain actually.

One thing to watch out for: Client requests quick-sale value, and specifies the report to be on the 1004. You cannot do that. The 1004 is for market value, and by its own restrictions, cannot be modified. If the assignment must be reported on the 1004, the other requested values must be reported (and supported) in an addendum of some kind; most of mine give the thumbs-up to the standard REO addendum. But MV has to be reported on the 1004 before you can reach the other values.

Testing the discount for REO's involves local knowledge and/or a high degree of confidence in reported DOM. I have the former, but not the latter. Begin by searching for all relevant sales. Narrow it down to those sales where the Grantor was a financial institution. Now you've got two batches of sales: REO and non-REO. Compare the average price/sf of each. Local REO's show about a 15 - 20% drop from MV for dispositions, which I define as sales that occur within 18 months of purchase. (E.g.: Sale has BigBank as Grantor. Previous sale was about a year ago, and Grantee was BigBank.) Liquidation sales are usually those which occur within 4-6 months of transfer from individual to bank. Short sales are harder to find; they're individual to individual usually, and sometimes are distinguished by a low sale price and a known investor as a Grantee.

Jim Plante wrote:...high degree of confidence in reported DOM....

If your MLS has a function we call "listing history report" you can research DOM in detail for any address (you have to be careful not to count a previous listing from a different time frame/owner). Then, if your sample size is large enough and representative, you can extrapolate a percentage increase (it's always an increase) to the system reported number for the area.

Jim Plante wrote:One thing to watch out for: Client requests quick-sale value, and specifies the report to be on the 1004. You cannot do that. The 1004 is for market value, and by its own restrictions, cannot be modified. If the assignment must be reported on the 1004, the other requested values must be reported (and supported) in an addendum of some kind; most of mine give the thumbs-up to the standard REO addendum. But MV has to be reported on the 1004 before you can reach the other values.

Testing the discount for REO's involves local knowledge and/or a high degree of confidence in reported DOM. I have the former, but not the latter. Begin by searching for all relevant sales. Narrow it down to those sales where the Grantor was a financial institution. Now you've got two batches of sales: REO and non-REO. Compare the average price/sf of each. Local REO's show about a 15 - 20% drop from MV for dispositions, which I define as sales that occur within 18 months of purchase. (E.g.: Sale has BigBank as Grantor. Previous sale was about a year ago, and Grantee was BigBank.) Liquidation sales are usually those which occur within 4-6 months of transfer from individual to bank. Short sales are harder to find; they're individual to individual usually, and sometimes are distinguished by a low sale price and a known investor as a Grantee.

That is a helpful capsule of research and reporting procedures for these things. As Jim indicates, if you are doing appraisal of some sort of "short sale", you first have to figure out what the client wants to do since the term "short sale" is pretty much devoid of a definition that includes homogeneity. And, important for conscientious appraisers is to consider in your business context; how much time can you afford to devote to this thing at the fee offered. There are some tricky analysis and multiple appraisals indicated.

Steve,
The local MLS is well-run and professional. The local agents are diverse; some are real pro's; some are overworked and under-staffed; some are just plain lazy; and others, of course, are merely crooks who will tell any lie necessary to sell a house or get a listing. Because of this eclectic mix, the DOM reported in the MLS is absolutely unreliable; I say so in my reports, and I will not use it.

Edd,
I'm fortunate enough to live in a COV state, wherein the value/sale price must be reported when the deed is recorded. My data service also reports deeds of trust, so I get a mortgage history for each property too. Not everyone is as fortunate (Sorry, Steve & Ter).

Using the mortgage history combined with the transaction history, you can fish out some of the short sales. They'll be characterized by a mortgage near 100% of the sale price, followed by a transaction at a value lower than what the outstanding mortgage principal should be. Sometimes they're obvious, other times not so much. In any event, one should support any discount found by citing the properties used to make the determination along with a summary of your process and reasoning. This is especially true if the IRS is to have anything to do with the appraisal. They want facts, not speculation. (They'll accept judgement calls in some cases, but you'd better have a leg to stand on and someplace to put your foot besides quicksand.)

Jim,

Keep pounding that support thing. It is absolutely essential that appraisers depart from this shooting from the hip that characterizes the profession and has for a long, long time. In fact, the advent of the much derided appraiser licensing most likely was given impetus by the fact that appraisers were just firing from the hip. Too bad some are still around and others are being added.

Jim Plante wrote:Steve,
The local MLS is well-run and professional. The local agents are diverse; some are real pro's; some are overworked and under-staffed; some are just plain lazy; and others, of course, are merely crooks who will tell any lie necessary to sell a house or get a listing. Because of this eclectic mix, the DOM reported in the MLS is absolutely unreliable; I say so in my reports, and I will not use it.

That pretty much describes the state of our MLS/agent force. However, I approach it a little differently than you do. I point out the flaws and inaccuracies in the system by doing listing history research and then come to my own opinion of typical exposure time and my own estimate of typical marketing time based upon that data, which is the best data available. If you don't use the MLS DOM data at all, then how do you get exposure and marketing time in your area?