Liquidation Value < Fair Market Value

By
Real Estate Agent with Inactive

The liquidation prices of REO properties and strong competition for buyers in markets with extraordinarily high numbers of REO properties is driving the 'fair market value' of homes to new lows and the liquidation of REO properties will probably cause an over-correction in the housing market.

According to the Dictionary of Real Estate Appraisal 'liquidation value' is the likely price of an asset when there is insufficient time to sell on the open market thus reducing its exposure to potential buyers? Illiquid assets like real estate often require a period of several months in order to obtain their 'fair market value' in a sale. Real Property Assets sold through a forced liquidation or through an orderly liquidation to be completed within a shortened time frame will generally sell for a significantly lower price due to the shorter time frame. Consequently, 'liquidation value' is typically lower than 'fair market value.'

Secretary Geithner developed the TAP to buy illiquid toxic assets from banks and firms in the financial market to protect and preserve the value of these toxic assets, to isolate toxic assets, stabilize the market, and to restore liquidity. The orderly liquidation conducted in an extended time frame with government assistance, favorable loan terms, and government guarantees will enable the sale of these assets at prices higher than they could fetch during an extraordinary market crisis.

REO properties are toxic assets in the housing market. We need a similar program to address the illiquidity of REO properties in the Housing Market. The Treasury and the FDIC could work with a select group of Real Estate Investment Trusts who would buy large portfolios of these assets and then re-sell them in by neighborhood groups to builders and/or developers who could rehabilitate these properties and then sell them at prices higher than they could fetch in the current housing market crisis.

Posted by

George Bennett, Principal Broker, Affiliated, GRI in Port Orford, OR 97465

Affiliated with 'Neath The Wind Realty Inc.

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Tags:
economic crisis
econimic aid
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financial crisis
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Rainer
9,744
Steve Bucher
Mortgage Intelligence Mortgage Consulting - Kamloops, BC

I am happy how cheap they are!  Clear them out!

I am a mortgage broker and yes, low appraisals are affecting my ability to do refi's and debt consolidndation, but it will end...yes it will end.

I am hopeful that the buyers of these "underpriced" assets will spread the word and build a momentum toward investment buying.  More people chasing the same under priced asset will lead to improved pricing like you said, but I think the public will be gunshy about chasing the values too high.  This short term pain will lead to long term stability.

The market conditions we face today are unique and there will never be another day like today.  Say that enough times and even the worst day feels good.

All the Best

Steve

Mar 27, 2009 09:28 AM #1
Rainmaker
1,403,064
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

It's true that many of these homes require rehabilitation. It's rare to find an REO on the lower end of our price bands in move-in condition. More of the REO homes in the middle bands are in fair to good condition...but then again, the folks that bought the larger single family homes probably had more discretionary income than those purchasing small condos without central heat and air.

Mar 27, 2009 09:40 AM #2
Rainmaker
157,058
George Bennett
Inactive - Port Orford, OR
Inactive Principal Broker, GRI

Steve - Investment buying is what we need to clear out the excess inventory. I was just thinking of ways that the govt. could accelerate it, establish a bottom, and bring about price stability.

 

Vicki - True enough. And if the govt. takes no action the market will recover eventually. But, in markets where there are numerous REO residential properties all residential property values are reduced. It would be helpful to everyone in these markets if a govt. program could help establish a bottom in the near term and facilitate a market recovery which will help all property owners and stabilize the value of residential properties and the Wall St. securities that these assets back.

Mar 27, 2009 12:17 PM #3
Rainmaker
157,058
George Bennett
Inactive - Port Orford, OR
Inactive Principal Broker, GRI

Steve - Investment buying is what we need to clear out the excess inventory. I was just thinking of ways that the govt. could accelerate it, establish a bottom, and bring about price stability.


Vicki - True enough. And if the govt. takes no action the market will recover eventually. But, in markets where there are numerous REO residential properties all residential property values are reduced. It would be helpful to everyone in these markets if a govt. program could help establish a bottom in the near term and facilitate a market recovery which will help all property owners and stabilize the value of residential properties and the Wall St. securities that these assets back.

Mar 27, 2009 12:17 PM #4
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Rainmaker
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George Bennett

Inactive Principal Broker, GRI
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