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[The Hall Monitor] Market Value Definition Under Undue Duress

Todd Huttunen began appraising more than 20 years ago with a few years off in between to pursue a career in cabinet making. He relegated that to hobby status and is currently an appraiser in an assessor’s office. His best friend dubbed him The Hall Monitor because of his rigidity and respect for rules. He offers Soapbox readers tongue-in-groove insight on appraisal issues. Today Todd probes the extreme, excessive, inordinate, or exorbitant definition of market value. …Jonathan Miller

There is more than one definition for Market Value but for our purposes today we will use the one listed first in The Appraisal of Real Estate, 12th Edition, which reads:

The most probable price, as of a specified date, in cash, or in terms equivalent to cash, or in other precisely revealed terms, for which the specified property rights should sell after reasonable exposure in a competitive market under all conditions requisite to a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue duress.

That definition works great, except, sometimes, for the last eight words, “and assuming that neither is under undue duress”. If you look up definitions for “undue” and “duress” you might put together the following phrases whose meanings are similar to “undue duress” “extreme coercion”, “excessive compulsion”, “inordinate constraint”, “exorbitant pressure”.

Since the definition does not read “neither is under duress”, we know that some degree of duress or coercion, compulsion, pressure, etc. is assumed, likely to be experienced by both buyer and seller to varying degrees depending on market trends. What then, constitutes “undue” duress as opposed to the “due” variety? That’s where these other words like extreme, excessive, inordinate and exorbitant become useful.

I believe that for most of the last seven years many buyers were “under undue duress” and, if the doomsayers are right, sellers will get their turn soon enough (note the future tense of that sentence – to be contrarian these days you have to be an optimist).

As someone who bought a co-op apartment in 2004, I feel qualified to speak on behalf of “buyers under undue duress” (BUUDhists). My broker and I had looked at more than 30 apartments and I had made offers on none of them (she was and still is my friend, believe it or not). As a result of so much looking however, almost before I even opened the door of the apartment I now live in, I knew this was the one.

This was a vacant, sponsor (developer) owned unit which had been on the market for about two months. I had seen enough to know that I should make a full price offer immediately, and I did. As it happens (as it used to happen), that full price offer was matched by “another buyer” the very same day. If I wanted this apartment (and I did) I would have to increase my offer in a sealed bid within one week, which I also did. I ended up paying almost 10% over the asking price.

Did the circumstances surrounding this sale cause me to pay more than “Market Value” for this apartment? In light of market conditions at the time, probably not. But mine is by no means an extreme, or even typical example of what many “BUUDhists” experienced during the boom years.

There was a story in The New York Times, June 9, 2002, (I kept the article) “Seller’s Market Continues for Homes in the County”, recounting the experience of a real estate broker who was himself looking to buy in Westchester and had been outbid on several houses before finally, in desperation, showing up at one house with his infant daughter in tow, hoping to gain the sympathy of the sellers. It worked and he got the house. “My advice to prospective buyers,” he said, “is to make a good impression on the seller. Wear a tie, comb your hair and look like you really want that house.” (I realize we were in a much different market in 2002, a sellers market, but that still sounds to me less like how to get a house and more like how to get girls.)

But seriously, can that kind of “duress” be described as anything but “undue”, extreme, excessive, inordinate, or exorbitant? When market conditions so greatly favor either buyers or sellers, the last eight words of the definition of Market Value need some adjustment. And who better to make adjustments than appraisers? When there is stability in the market (when is that?) the textbook definition applies. At other more turbulent times, how about a multiple choice: ” and assuming that seller/buyer is under undue duress” (circle whichever is appropriate).