Three years ago, when I did a CMA, (Comparative Market Analysis) I would exculde Shortsales and REO's because I didn't want to skew the numbers. I would analyze each house down to that detail.
Nowadays, SS & REO's can make up as much as 80% of a sample! We cannot ignore that big of a number. That is what Statisticians call "significant".
The houses are innocent victims in this parade; they didn't choose to be neglected and abandoned. And hopefully, they will be restored and grandiose again.
I belive that Appraisers are in the same boat, only more so: They are trying to compare the subject house to near-by Comp's and when they go looking for comp's, they can't find any that meet the guidelines. They don't want to go too far out; that would really be too much of a difference.
It's going to be years until this gets back to "normal".