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Why can't appraisers use foreclosure sales as comparables for determining fair market value for a property heshe is appraising?
Wiki User
∙ 15y ago
Appraisers use sales of homes that were made as arms-length transactions where neither the buyer was desperate to buy nor the seller was desperate to sell as a basis for comparing other similar properties in an area. A foreclosure property does not meet these criteria because of the nature of the legal process that the house is undergoing.
Houses in foreclosure are typically classified as distressed properties, which means that there is something wrong with them that induces the owners to sell for less than the fair market value of the property. In some cases, this might mean a condemned house or one that has been severely damaged or fallen into disrepair.
In such cases, the buyers of a distressed house are able to offer the sellers less than what the property would sell for if it was in a fairly decent condition. But these types of houses are also difficult to compare to other houses in the geographic area that are in better condition or where the owners have no added reasons to unload the property.
Foreclosure cases work slightly different compared to a house that is falling apart or damaged, but the lack of time many people have to sell before losing the home to a county sheriff sale indicates that the buyers have the upper hand in negotiating a beneficial price in order to complete the sale before the eviction.
This is one reason that properties in foreclosure often sell for less than their fair market value or the current market value of similar properties, even if there is nothing physically wrong with them. Appraisers know that the sellers may not even have wanted to sell, which can easily skew comparable valuation data.
Properties owned by banks after a foreclosure auction has taken place are little different. In these types of cases, banks may not take care of the houses, or vandals may strip them for any useful resources like copper pipes, for instance. Banks also do not want to own these properties and are often willing to entertain lower offers.
But again, these types of sales are not between a disinterested buyer and a disinterested seller -- in most instances of foreclosure, the seller is willing to unload the property for just enough to make it worth their while. Owners want to sell to save the house and their credit from foreclosure, while banks just want to unload foreclosure properties from their balance sheets.
Thus, foreclosure properties are not good candidates for comparable sales, except for comparing sales of other foreclosed homes. Appraisers would much rather use home sales that were not done under duress, because a certain home was condemned, sales between family members, or foreclosures. The values have too great a tendency to become distorted.
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∙ 15y ago
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What is the relationship between securitizatioln and the role of financial intermediaries inthe economy. What happen to financial intermediaries as securitization progresses?
- Securitization changes the basic role of financial intermediaries. Traditionally, financial intermediaries have pooled funds from investors loaned to firms in their place. - Securitization has enabled firms to offer these functions in the form of a security, in which case, the focus shifts to the more essential function i.e. distributing a financial product. (For example, in the above case, the bank, being the earlier intermediary, was eliminated, and instead the services of an investment banker were sought to distribute a debenture issue.) - Securitization seeks to eliminate fund based financial intermediaries for fee based distributors. (In the above example, the bank was a fund based intermediary, a reservoir of funds, whereas the investment banker was a fee based intermediary, a catalyst, a pipeline of funds. Hence, with the increasing trend towards securitization, the role of fee based financial services has been brought into the focus.) - In case of a direct loan, the lending bank was performing several intermediation functions as noted above. It was distributor, in the sense that it raised its own finances from a large number of small investors. It was appraising and assessing the credit risks in extending the corporate loan, and having extended it, it was managing the same. - Securitization splits each of these intermediary functions apart, each to be performed by separate specialized agencies. The distribution function will be performed by the investment bank, appraisal function by a credit rating agency, and management function, possibly by a mutual fund which manages the portfolio of security investments by the investors. Hence, securitization replaces fund based services with several fee based services. This is mainly from http://www.citeman.com/5298-securitization-capital-markets-structured-financial-and-others/
What are Key issues considered by the financial institutions while appraising a project for term finance?
Financial institutions appraise a project from the marketing, technical, financial, economic and managerial angles. The principal issues considered and the criteria employed in such appraisal are discussed below in this article. Market Appraisal: The importance of the potential market and the need to develop a suitable marketing strategy cannot be over emphasized. Hence efforts are made to: Examine the reasonableness of the demand projections by utilizing the findings of available surveys, industry association projections, Planning Commission projections, and independent market surveys (which may sometimes be commissioned). Assess the adequacy of the marketing infrastructure in terms of promotional effort, distribution network, transport facilities, stock levels etc. Judge the knowledge, experience, and competence of the key marketing personnel. Technical Appraisal: The technical review done by financial institutions of focuses mainly on the following aspects: 1. Product mix 2. Capacity 3. Process 4. Engineering know-how and technical collaboration 5. Raw materials and consumables 6. Location and site 7. Building 8. Plant and equipments 9. Manpower requirements 10. Break even point. The technical review is done by qualified and experienced personnel available in the institutions and/or outside experts (particularly where large and technologically sophisticated projects are involved). Financial Appraisal: The financial appraisal seeks to assess the following: Reasonableness of the Estimate of capital Cost: While assessing the capital cost estimates, efforts are made to ensure that (1) padding or under-estimation of costs is avoided, (2) specification of machinery is proper, (3) proper quotations are obtained from potential suppliers, (4) contingencies are provided for, and (5) inflation factors are considered. Reasonableness of the Estimate of Working Results: The estimate of working results is sought to be based on (1) a realistic market demand forecast, (2) price computations for inputs and outputs that are based on current quotations and inflationary factors, (3) an approximate time schedule for capacity utilization, and (4) cost projections that distinguish between fixed and variables costs. Adequacy of rate of return: The general norms for financial desirability are as follows: Internal rate of return: 15 percent Return on investment: 20-25 per cent after tax Debt service coverage ratio: 1.5 to 2.0 In applying these norms, however, a certain amount of flexibility is shown on the basis of the nature of the project, the risks inherent in the project, and the status of the promoter. Appropriateness of the Financing Pattern: The institutions consider the following in assessing the financial pattern. 1. A general debt equity ratio norm of 1:1 2. A requirement that promoters should contribute a certain percentage of the project cost. 3. Stock exchange listing requirements. 4. The means of the promoter and is capacity to contribute a reasonable share of the project finance. Economic Appraisal: The economic appraisal looks at the project from the larger social point of view. The methodology adopted by financial institutions for the purpose of economic evaluation (also referred to as social cost benefit analysis) is labeled as Partila Little Mirrlees approach. In addition to the calculation of the economic rate of return as per this approach to the calculation of the economic rate of return as per this approach, they also look at two other economic indicators: (1) effective ate of protection, and (2) domestic resources cost. Admittedly, the economic review done by financial institutions is not very rigorous and sophisticated. Also, the emphasis placed on this review has diminished. Now it is hardly done. Managerial Appraisal: In order to judge the managerial capability of the promoters, the following questions are raised: 1. How resourceful are the promoters? 2. How sound is the understanding of the project by the promoters? 3. How committed are the promoters? Resourcefulness: This is judged in terms of the prior experience of the promoters, the progress achieved in organizing various aspects of the project, the skill with which the project is presented and the ability to raise committed capital and unforeseen shortfall financing. Understanding: This is assessed in terms in terms of the credibility of the project plan (including, interalia, the organization structure, the staffing plan the estimated costs, the financing pattern, the assessment of various inputs, and the marketing programs) and the details furnished to the financial institutions.
Planning is an empty exercise without control?
planning and controlling are closely related to each other as shown in Fig. 1. After a plan becomes operational, control is necessary to measure progress, to uncover deviations from the targets and to take corrective steps. It is also not possible to think of an effective system of control without the existence of good plans. Billy E. Geotz has explained the relationship between planning and controlling in the following words, "Managerial planning seeks consistent, integrated and articulated programmes, while management control seeks to compel events conform to plans".Control is always based on planning. It is also true that in a running enterprise planning depends upon controlling. Every manager uses certain standards for measuring and appraising performance which are laid down by planning. The control process, in turn, may reveal the deficiency of plans and may lead to the revision of planning. It may also lead to setting of new goals, improving staffing and making changes in the techniques of supervision, motivation and leadership.Planning without control is meaningless and control without planning is blind. Planning is an empty exercise without controlling. A good plan will not bring any concrete result if the management is lacking in controlling. Planning identifies the goals and determines the ways of achieving them. It is control which ensures attainment of goals by evaluating performance and taking corrective action. Control presupposes the existence of standards with which the actual performance is to be compared. If the standards of performance are not set in advance, the manager will have no idea of `what is control'. Thus, planning must be done before the actual operation and control should follow plans during and after the actual operation. The experience gained in controlling will help improve the process of planning.]Controlling and coordination are twins of management. Control is an import-ant element in the process of management, whereas coordination is the essence of management itself. Control is a function of management like planning, organising, staffing and directing. But coordination is an all-inclusive function. Each of the managerial functions including controlling is an exercise in coordination. Thus, controlling is a facilitative function that promotes coordination in the organisation. If controlling does not lead to effective coordination, its basic purpose will be lost.Controlling and coordination are closely related in many ways. Firstly, authority is the basis of both the processes. Secondly, both are performed by the managers at all levels. Thirdly, both are aimed at achieving organisational goals. Fourthly, both are necessary for achieving stability, continuity and growth of the organisation and consistency, precision and discipline in the organisation. Lastly, both control and coordination are rational concepts in the sense that they seek to relate organisational means with organisational ends or goals. They strive to maintain organisations as rational systems, relatively free from conflict, confusion and chaos.Controlling is an important function of management. Without control, a manager cannot complete his job. All other managerial functions are only preparatory steps for getting the work done, and controlling is concerned with making sure that there is proper execution of these functions. Control is necessary whenever a manager assigns duties and delegates authority to his subordinates. He must exercise control over the actions of his subordinates so that the authority delegated to them is used properly.The road signals at a road crossing appropriately illustrate the significance of control. Just as road signals are essential to ensure accident-free and smooth traffic, management controls are necessary in any organisation for its smooth functioning. By controlling, the manager ensures that resources are obtained and used economically and efficiently for the achievement of organisational objectives. A good control system provides timely information to the manager which is very much useful for taking various decisions. Control simplifies supervision by pointing out the significant deviations from the standards of performance. It keeps the subordinates under check and brings discipline among them.An effective system of control will help in achieving the following benefits :1. Coordination. The size of modern organisations is quite large. A large amount of capital and large number of people are employed in them. This complicates the problem of control as there are many units producing and distributing different products. In order to coordinate their activities, an efficient system of control is necessary.2. Corrective Action. An efficient system of control provides the basis for future action. Taking corrective action may lead to modification of planning, organising and directing. Control will also check the mistakes being repeated in future.3. Decision-making. The process of control is complete when corrective actions are taken. This involves making right decisions as to what types of follow up actions are to be taken. This will lead to accomplishment of organisation objectives. According to W.T. Ierome, "Control is needed both to simplify the making of subsequent decisions and to ensure the realisation of the objectives implicit in the original long-range policy decisions" .4. Better Planning. Control is the only means to ensure that the plans are being implemented in real sense. It points out the shortcomings of planning by comparing the actual performance with the planned standard and suggest steps to improve planning.5. Decentralisation of Authority. The modern trend of business enter-prises towards decentralisation calls for a systematic attempt for controlling. Under decentralisation, the authority of decision-making is dispersed through-out the organisation. Management must keep control in its hands to know whether the authority is being used properly. Without adequate controls, decentralisation cannot succeed.6. Effective Supervision. Control facilitates effective supervision by pointing out significant deviations. It keeps the subordinates under check and brings discipline among them. While control cannot cure habitual dishonesty in all cases, management is irresponsible if it does not make a reasonable effort to provide order and discipline among its employees through effective control processes
Why can't appraisers use foreclosure sales as comparables for determining fair market value for a property they are appraising?
A foreclosure sale is a sale made under duress. Foreclosed properties are sold in order for a lender to try to recapture some of the money that was loaned against the property. The properties sell for any amount that can be obtained, and is not representative of the fair market value.
What are some of the services Seminole County Property Appraiser offers?
The Seminole County Property Appraisers Office offers a wide range of services to the citizens of Seminole County. Their main function is appraising real estate.
Are museum curators qualified to appraise artifacts and antiques?
Try checking out some school's that can recommend individual experts in the field of appraising... i.e. The International Society of Appraisers, or someone like the Asheford Institute of Antiques. They're likely to have lists of qualified appraisers who've graduated from those organizations that might include museum curators.
Real Estate appraisers are experts at?
Taking a home's worth, analyzing it, and determining the value. They use this information to help buyers and sellers get the most for their homes. A real estate appraiser is an expert at valuing homes. They use this information to help buyers and sellers get the most for their homes. Reach us for the best deals Contact Us: +91 8860646116
What is amv in appraising?
AMV stands for "Asking Market Value" in appraising. It refers to the price at which a property is currently listed for sale on the market, which may not be the same as its appraised value. It is important to consider both the AMV and the appraised value when determining the worth of a property.
Things found in a real estate appraisers office?
A lot of rubber band balls are found in a real estate appraisers office. MAYBE a calculator. Appraisers have it easy really. They look up recent sales, pick out three that usually aren't even close in features to the property they're appraising, then if the sales price of the property they're appraising is even close to the average sales price, it's a done deal. It's quite the racket. Some lenders who pretend they don't have any affiliation with the Appraisers will instruct them to value properties especially low so the bank doesn't have to take much of a risk. Having an appraisal done is the worst part about selling a property. Oh, I know what else can be found in a real estate appraiser's office -- a TV. They probably have a lot of time to watch ESPN.
How do you make an age adjusment for appraising?
It depends what and who you are appraising.
Antonym for appraising?
Neglect and ignore are the two antonyms for appraising. Some synonyms are audit, assess, and price. The word appraising is a transitive verb.
How can the word appraising be used in a sentence?
I'll be doing the appraising around here!
What has the author Kenneth McConville written?
Kenneth McConville has written: 'Appraising an investment appraisal' 'Appraising an economic appraisal'
What do appraisers look for when appraising a home?
Appraisers look at a homeÕs proximity to public utilities such as schools and transport, the floor the apartment is located on, property size, and the exterior of the home such as foundation, condition of the house, interiors such as the floor, walls, windows, lighting and their general condition. The homeÕs extra features such as air conditioning, fireplace, garage and swimming pool are of utmost importance to appraisers.
What is a synonym for obersving?
watching, seeing, appraising
