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72 with the intent to list that property on the open market based upon the resulting appraised value, they typically request an appraisal report that establishes a "market value" conclusion based upon a specific date in time. is is often requested on the same type of form-based appraisal report that would be used in a loan origination appraisal assignment. e problem is that "market value" as defined in federal regulations does not always correlate well with the intended use of the above described assignment. Again, from 12 C.F.R. 323.2 (g): "Market value means the most probable price 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 and 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: Buyer and seller are typically motivated; Both parties are well informed or well advised, and acting in what they consider their own best interests; A reasonable time is allowed for exposure in the open market; Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and e 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." As you can see, this definition of market value includes several provisions which may not be typical of an REO transaction. First, market value, as defined, requires that the price not be "affected by undue stimulus." While there are several possible interpretations, many appraisers consider a forced sale situation, where the seller does not have the ability to wait until more favorable conditions exist to bring their property to market, fits that undue stimulus moniker. e REO seller does not have the options of a more traditional, or typical, property seller. Second, consider the phrase "typically motivated." Unless a market is dominated by REO activity, the typical motivation of a seller of residential real estate may certainly be to maximize the sales price received, whereas the typical motivation of an REO seller may be to dispose of the non- performing asset in the shortest possible time. us, in either situation, if the participants in an REO transaction are unlikely to meet all of the requirements of the market value definition, it is highly unlikely that an appraisal with a market value opinion will effectively establish an appropriate listing price for the property considering its likely level of trade. Another complication for appraisers is that both the market value definition and the federal definition of "appraisal" require a value conclusion based upon a "specific date." Due to custom, and overuse of appraisal forms intended for origination appraisal assignments, this typically leads to an appraiser identifying the effective date of their value conclusion as the date that the property was viewed/ inspected. is means that the appraiser must base their value conclusion only on information and analysis leading up to that date, but precludes the appraiser from extrapolating the analysis beyond the effective date. Does this approach make sense, considering that the intended use of the REO appraisal is really to predict how the property will participate in the market subsequent to the date of the valuation? What if an appraiser was allowed to utilize an approach and definition of value similar to what they might use in completing an Employee Relocation Council appraisal, which requires the appraiser to forecast a future "anticipated sales price" based upon a reasonable extrapolation of currently observed marketing conditions into the probable marketing period of the property being appraised? Compounding many appraisers' frustrations with the current system is the fact that real estate brokers and salespersons who complete broker price opinions are rarely asked to adhere to the same standards and guidelines as the appraiser when completing their assignments. Value definitions are generally much less rigid, if any specific definition is provided or required at all. While many adhere to voluntary standards of practice, the most notable of which are promoted by the National Association of Broker Price Opinion Professionals, brokers are not subject to mandatory federal reporting standards, like the USPAP for appraisers, which might require them to specifically define the type of value and the scope of work that they are adhering to in completing their assignments. is freedom provides significant latitude, which actually allows brokers completing a BPO to intuitively tailor their conclusions to actually solve the appropriate valuation problem for their client. ey are free to construct their opinions in terms of an anticipated sales price, forecasting the property's place in the market during the most like listing period, while also considering the somewhat unique motivations of the transaction participants within an REO situation. Given the freedom to alter the definition of value in an assignment based upon the appraisal problem to be solved and the scope of work necessary to solve it, as is actually promoted by the USPAP, appraisers can provide a much more valuable service for customers seeking value conclusions that don't always fit inside of the "market value" box. An appraisal should not always be constructed to provide a market value conclusion, as the current definition of the term requires. It could be much more beneficial for an appraiser to utilize value definitions like "disposition value," "liquidation value," or, as described above, "anticipated sales price," especially in situations dealing with likely transaction participants that aren't within the norm. Armed with these additional tools, appraisers would no longer be at a disadvantage and could compete fairly with other valuation professionals in the REO or distressed asset valuation sector of the market. "Appraisal means a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information."

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