However, if I was working for a buyer, you do have to consider that short sale in the bigger pictures. We as agents aren't held to any USPAP rules in terms of pricing, so we're more free to consider the situation. The way I see it is...if you're looking at a particular neighborhood, and there are several homes for sale and the only one or one of the very few homes that have sold happened to be a short sale, ..that says a lot about the local market. You could deduce that the short sale price may be the true market value of that area. Also would need to consider how long it took the short sale to get an offer (something that might be difficult to do with only consumer real estate sites)...that could tell you another bit of info. If the short sale still took a while to get an offer, ...and most or all of the other homes in the area are still up for sale... i'd say the short sale is the only valid comp for that area. So...long answer...it depends on the unique situation that very local area is experiencing.
If the majority of sales in a particular market are occurring at liquidation value and have impacted the overall market, the potential exists to force owners of other fair market listings to lower their prices to compete or take their listing off the market entirely. In this case, the overall market value could eventually reflect a liquidation value.
As to the comment about some short sale generating multiple offers, the NWMLS is starting to crack down on listings where the asking price is intentionally set lower than a reallistic number the bank would accept. So that might be coming to an end.
Sure counts for me as a buyer, lol. Same reasons why I'd refund clothes from Nordstrom if I can find the same thing at the rack for half price
I would not assume, as James appears to, that a short sale is necessarily a fire sale. Very often short sale properties get multiple offers with escalators that drive the price higher than the asking price. If the short sale is within the price range of other comps in the area, I think it has to be considered. If the asking price is way off and you don't have a sold price yet, then I would not consider it.
From the phrasing of your question I assume you had one comp that was a short sale. If you have the sold price and the property is truly "comparable" then the question becomes, does the sold price reflect the same range as the other comps you have? This is what I meant to communicate when I said "all other factors being equal."
But, as mentioned below, a single short sale does not constitute a true representation of a particular market area (except for instances when it does, lol).
Another way to look at this is let's say you're planning to sell your house. Your neighbors have the same house plan you do with similar upgrades and view. They're getting a divorce and are selling their house for $100,000, though they paid $300,000 and it's worth approximately $500,000. I would not consider this a comp because the price is artificially low and should not have any bearing on the market value of surrounding properties. Now let's pretend this is a short sale. Same answer.
If a majority of houses in this area are being sold for $100,000 by people getting divorces, then you will most likely not be able to sell yours for $500,000. This definately does affect your market value. But one house probably won't.
I just emailed an appraisal school instructor and see what he says.
A short sale would have to be factored into the comparables, because it is a sale in the area. An expereinced, knowledgeable agent can do a detailed report and statistical analysis, which would include all the comparables in the area. You have to look at Active, Pending and Closed Sales to determine your best pricing strategy. The short sale is one of the comparables.
A key factor in in determining how aggressively to price is the current absorption rate for your neighborhood. On my website, http://www.mcknightrealty.com, under the button "Market Statistics', I do have a link to graphs that show the current absorption rate. When absorption is low, you have to price very aggressively to sell.
I notice you are also planning to buy. If you are planning to move to a larger home or a more expensive area, today's market is the best we may see in this century. Because if prices have dropped 10% (to use round numbers), that means a $30,000 drop on a $300,000 property and a $60,000 drop on a $600,000 property. This is the very best time to "move up".
Short sales would be useful if you were trying to price a short sale as an agent, because then you'd be going after the same market. But the appraisal for the financing should still be based on non-distressed sales.
That said, if you have an area with a lot of short sales or foreclosures, that will drive down the prices of the other properties. But you would still look at the prices those other properties are selling for in such a market.
I also wonder how many answering here have been expert witnesses. I've only been an expert witness twice, but the last time the court through out all of the appraisers comps as comps. One was a HUD property, one indicated "motivated seller" in the listing. Others were simply too far away.
When talking with clients I have to remind them that a 'short sale' doesn't always mean a good listing price. I would have to argue that like estate sales and some other seller specific issues, a 'short sale' is not exactly executed at 'arms length'. That means it's not truly a normal market sale. I've been involved with such situations where the delay of a non-responsive institution sent potential buyers packing. It also seems to invite people to low ball since the loss is sustained by an institution with deep pockets. I suppose at some point if short sales were the norm of local market conditions and not a small fraction of sales like today then there may be no way to ignore their relevancy. Let's hope we don't get there.