Home Buying in Denver>Question Details

Bruce Browni…, Home Buyer in 75039

Denver, CO Foreclosures and Comps?

Asked by Bruce Browning, 75039 Sun Nov 28, 2010

In Denver area are Foreclosures and Short Sales used by Appraisers in Comps OR are they excluded for some reason??

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BEST ANSWER
Bruce-
Appraisers can not arbitrarily exclude any comparable sales from an appraisal if the properties are truly comparable and sold within the preceding 6 months. What a good appraiser can do is adjust for variables, both the conditions under which a property sold and the condition of the property. ( I get calls from appraisers all the time asking about the condition of properties that I listed and sold as well as well as the conditions under which I sold them.) Unfortunately all of the foregoing notwithstanding, a neighborhood that has a lot of foreclosures will eventually find its values being drug down, and there is little to be done about it, except dig and hold on- the housing market fell along ways and it will take time for the values to rebound some.

If you are trying to buy - don't count on foreclosure comps to support an artificially low offer. If you are looking at a short sale the rule of thumb for a lender is that they have to net more than they would if they took the property back and brought it on the market as a bank owned- typically this means they are looking for 80ish% of market value as a short sale and maybe a little less as a bank owned- but remember it costs the bank money to take the property back so that is considered in and deducted from the net of a bank owned property. All of these are generalities- every situation is different and every transaction is different but I wish you well in all of your transactions...and don't forget to have a little fun- buying property is stressful but it also can and should be a fun process in which you learn a great deal!
Cheers-
Carole & Greg
1 vote Thank Flag Link Mon Nov 29, 2010
Bruce,

One of the appraisal problems I have run into is that the appraiser does a quick analysis of sales on paper and does not call to find out the condition of the property. This sometimes happens when an appraiser is in a hurry or if they are called in from the lender's list of 'approved appraisers' and the appraiser is not familiar with the nuances of a certain neighborhood. But in short, in my opinion when there are 10 homes valued at $200,000 and 2 or 3 distressed homes in bad condition sold at $160,000-$170,000, these distressed homes SHOULD NOT ME CONSIDERED. As Stephen said, it would be a dis-service to the owner who is paying close to $500.00 for an accurate assessment of value.

As Scott said earlier, sometimes a good local broker can send the appraiser comps that are more revelent to challenge a low appraisal. I have done this and through an underwriter review process had the price adjusted up 10's of thousands of dollars to the correct value. The main thing for you is to have a good local listing broker that you trust to intervene into the 'weird and inexact' science of home appraisals in this turbulent market. Best of success to you.

Robert McGuire - 303-669-1246
Real Estate Consultant
Your Castle Real Estate
http://www.rmcguire.yourcastle.org
2 votes Thank Flag Link Mon Nov 29, 2010
It seems you didn't quite get a clear cut answer! I think a lot of it depends on the appraiser and the experience and knowledge of an area. In some neighborhoods that are saturated with distressed properties it may be necessary for these homes to be used as comps.

If you are looking for any specific comps for your neighborhood, please let me know as I would be happy to send these your way!!

Thanks,
Brooke Hengst
REALTOR, CDPE
Your Castle Real Estate
720 988 5952
bhengst1@gmail.com
Web Reference: http://www.brookehengst.com
1 vote Thank Flag Link Thu May 12, 2011
Foreclosures and shorts are not market based comps, and should never be used unless they define the market in a neighborhood. There are only a few neighborhoods in the Denver area where they dominate, and in the rest only arms length market based sales should be used. Foreclosures and shorts reflect the financial strength of the borrower or the loan condition of the lender. If you see an appraiser using them demand he adjust upward to reflect the difference between market prices and the foreclosure/shorts. Some lenders actually instruct appraisers to focus on them, and this results in a terrible disservice to the public. If you have a broker in a transaction make sure they watch for this, and back you up.
1 vote Thank Flag Link Tue May 3, 2011
Bruce,

Robert McGuire's answer below is telling. I just did a CMA for a potential client this weekend where the lack of good comps was an issue on normal sales and combined with a couple of distressed sales skewed the result by at least 20%. This, unfortunately, as I explained to the potential seller is the initial work many appraisers do under their now required practices. It works for the buyers and lessen's a banks risk, but is a dis-service to the seller. A good broker has to work harder to find comps and feed them to the appraiser if they don't do the work themselves.

As a home buyer in CO, this practice works for you.
Web Reference: http://www.georgelewman.com
1 vote Thank Flag Link Mon Jan 17, 2011
Erin,

As former director of the Real Estate commission. I would appreciate it if you could send me the reference or a commission document that is is lawful and appropriate to you a short sale and or a foreclosure in a appraisal of a fair market transaction unless there are no fair market comps available?

Appraisers still consider condition of the home that is being appraised and other additions and things that may add value to the home in the appraisal. Any reference to your answer below would be very helpful.

Thank you,

Steven Wright
Broker Associate/Realtor CRS, GRI, CDPE
Aspen Real Estate
stevensellsco@gmail.com
http://www.stevensellsco.com
(720) 989-5283 - Cell
1 vote Thank Flag Link Mon Nov 29, 2010
Hi Bruce,

All properties including short sales & foreclosures are considered by appraisers when appraising a property.

Call me for any additional questions that you have about Denver Real Estate. I can answer your questions free of charge and for no obligation.

Thanks,

Ethan Besser


Ethan Besser
Broker Associate
Keller Williams - DTC
Cell: 303.856.8980
Fax: 303.539.4809

The Besser Choice in Real Estate!
1 vote Thank Flag Link Sun Nov 28, 2010
Bruce,
Sorry to say Foreclosures and Short sales are used by appraisers throughout the country.
0 votes Thank Flag Link Mon May 16, 2011
It depends whether you are buying a foreclosure or short sale. I know around DC, if you are buying a short sale, FHA is asking for at least 3 other short sales as comps.

If you are not buying a short sale or foreclosure, they are often excluded if there are enough other comps, but if you are in an area dominated by them, then they will be factored in and if you have a good appraiser, he will adjust accordingly.
0 votes Thank Flag Link Sat May 14, 2011
Hello Bruce,
As others have noted, the answer in most cases is no. If you live in a neighborhood devastated by foreclosures and short sales, that is another matter.

Some links for you:
http://www.marketwatch.com/story/how-to-fight-back-against-a…

http://www.oneprojectcloser.com/how-to-challenge-appeal-home…

I've never encountered an appraiser who was not receptive to additional input. If you have had more than one appraisal, scour the appraisal reports for any inaccurate information. Compare the two. And then prepare a written challenge.

Best of luck.
SuZ
PML of Longmont
0 votes Thank Flag Link Thu May 12, 2011
I’m wary of answering appraisal questions because I’m not an appraiser. However, I have seen appraisers use foreclosures and short sales in their appraisals, and I have seen them exclude them. Frankly, the question that must be answered is whether the property is a true comparable. If a foreclosure or a short sale property is in very poor condition and the subject property is in excellent condition, a lot of adjustments have to be made in order for the value to be supported. Certainly, it is appropriate to question the value determined by an appraiser if they have used properties that are not truly comparable.
0 votes Thank Flag Link Wed May 11, 2011
All sales should be considered........not all sales should be relied upon. I don't appraise in the residential market, but the way I interpret the market value definition I use, a foreclosure would not be considered. "....willing buyer...willing seller....neither acting under any compulsion to buy or sell.....
0 votes Thank Flag Link Tue May 3, 2011
Foreclosures and shorts are a reflection of the financial strength of the borrower. They have nothing to do with the value of a property in an arms length transaction, and should not be used. I make sure any appraisal of my homes included only real sales. As a seller don't ever let yourself be fooled. A lot of brokers try to convince parties that this is an acceptable practice. Ask yourself. Why are the financial problems of someone else any refelction on me or my property? It's time to start standing tall as sellers and demand practices that demonstrate the fiduciary duty brokers, appraisers and lenders have to the home buying public. http://holbenhomes.com
Web Reference: http://holbenhomes.com
0 votes Thank Flag Link Mon Jan 17, 2011
Many instances the appraiser will always include at least one foreclosure or short sale in the appraisal.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes Thank Flag Link Mon Jan 17, 2011
Another facet of this issue that isn't being addressed here or anywhere else is the destruction of the appraisal industry; first by Andrew Cuomo's unilateral mandate about who selects them in a real estate transaction and who can communicate with them, and them FNMA & FHLMC's doing so. The result is that not infrequently an appraiser get "selected" who has little or no familiarity with the neighborhood, the type of product. Unless someone is working the transaction, it can be very easy for an appraisal to be incorrect. May soon I'll address how appraisers get selected. Really a terrible bastardization of one of the most important financial transactions in a person's life.
Web Reference: http://holbenhomes.com
0 votes Thank Flag Link Mon Nov 29, 2010
Hi Bruce,
It appears that all homes that have sold in last 90 to 120 days are included in todays appraisals.
All best,
Pam
0 votes Thank Flag Link Mon Nov 29, 2010
Using foreclosurea or shorts as comps does a terrible dis-service to property owners. They represent the financial strength of an owner, not the value of a property in an arms length transaction. In Denver, in stable neighborhoods, these types of properties sell for about 70% of market based sales, and have no business being used as comps. As a builder / broker I've had a number of brokers come to me trying to use these types of sales as "comps". I correct their thinking. If I were to be giving advice to a seller I'd tell them to not allow any of these type of sales to be used as a "comp" for listing a home (unless, of course the neighborhood is declining and is a sea of foreclosures and shorts). In negotiating a listing, make sure your agent is experienced and knowledgable and knows your neighborhood. Review the comps they want to use, and make sure they are arms length, market based sales. Make sure they are totally familiar with your home, and make sure if there are any unusual features that they make every other broker showing the house aware of these features. Bankers have no business instructing an appraiser on how to appraise a property in a sale. If you see this going on, demand your beoker push for another appraiser or another lender. Far too many brokers over play the beatdown that housing has gone through for almost 5 years, now, but Denver has never been as bad as media reports, and in Wellshire, where I'm building, existing homes have actually increased in value, base on market sales from between 40% and 100%. @http://holbenhomes.com
Web Reference: http://holbenhomes.com
0 votes Thank Flag Link Mon Nov 29, 2010
It depends on the appraiser, most time the answer should be not though. Your best bet to get an accurate appraisal is to make sure you use a Real Estate Agent who is prepared to handle an appraiser efficiently by having comps available for him/her and explaining why they did or did not use the short sale and foreclosure homes. If you have anymore questions about Denver Real Estate please feel free to contact me at 720-289-3027, or Jimismyagent@gmail.com. I hope you find what you are looking for.

Jim Groskopf
0 votes Thank Flag Link Mon Nov 29, 2010
it depends on what comps are available. We Have all SOLD foreclosures and HUD homes on http://www.kennarealestate.com for your information.
Brian
0 votes Thank Flag Link Mon Nov 29, 2010
In Denver and other places as a few before me have stated. Typically an appraiser is required to use like comps for an appraisal unless there are no other comps available in neighboring developments. In a appraisal the bank will not quickly if the appaiser has done so because they will have to show what kind of sale it is on the report. If it isn't a fair market comp used in the appraisal, you can typically request a new appraisal at your own expense depending on the bank. Hope that helps.

Steven Wright
Broker Associate/Realtor CRS, GRI, CDPE
Aspen Real Estate
stevensellsco@gmail.com
http://www.stevensellsco.com
(720) 989-5283 - Cell
0 votes Thank Flag Link Mon Nov 29, 2010
Bruce it depends on what teh bank requesting the appraiser wants, each bank will state their requirements and conditions for the appraiser to use. Some appraisals will specify no bank owned sales and no short sales unless the area has been negatively affected by them. Depending on if it is an appraisal for a new purchase, a refinance or for a short sale, each appraisal may have different requirements. if the bank is looking for a 90 day value, they may ask the apraiser not to use bank sales or short sales. if they are looking for a 30 day value they may ask them to unclude all sales. The variable if all sales say are fair market value sales at $200,000 and there is only 1 shorty sale at $150,000, they will usually discount that short sale value unless the predominate amount of sales are short sales whoch can bring down a market or neighborhood in a hurry.
0 votes Thank Flag Link Mon Nov 29, 2010
Hi Bruce,

All comps are used in appraising a property, including foreclosures and short sales. There is a tendency to underemphasize these comps, but they are used. As the former Director of the Division of Real Estate where I regulated appraisers, I am happy to more fully answer this question and any others you may have.

Erin Toll (Glover)
0 votes Thank Flag Link Mon Nov 29, 2010
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