Home Selling in Puyallup>Question Details

Tim V. Johns…, Other/Just Looking in Puyallup, WA

Do you think it is fair for appraisers to include short sales and REO's for comps if the home you are selling is neither of those?

Asked by Tim V. Johnson, Puyallup, WA Mon Mar 7, 2011

I had a seller ask me why the appraisers use Foreclosures and short sales for comps on his home when those homes were sold as distressed propeties and his isn't. Thought it was a fair question.

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A few years ago I think it was fair to keep them out of the analysis, but now that distressed sales are so prevalent I can understand including them - in fact, they are now so much a part of the landscape and impacting nearby property values, that they really must be considered. The proportion of distressed properties to total inventory in the local area will be a major factor. If the proportion is high, there really is no getting around them. As recently as 3 years ago, appraisers in my area did not include them because they did not reflect two "willing" parties, but as the numbers of increased, I find that they are in the mix. And I include them in my view when analyzing price as well. Surely you factor in condition etc. but if the same buyer is considering your home and the distressed property, you are most certainly in competition.

Good question - just had this very discussion with one of my sellers last evening.

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Jeanne Feenick
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2 votes Thank Flag Link Mon Mar 7, 2011
As of now the appraisers don't really have a choice as that is the majority of some markets. I know here, 95% of the listings, pendings, sold under 250k are bank owned or short sales. Not too mention an agent in our office who is also an appraiser was told by the banks that hire her that she has to put short sales & bank owned in her comps....
1 vote Thank Flag Link Mon Mar 7, 2011
I don't like the idea of short sales and REOs being considered during appraisals; however, they are part of the housing market and thus included as comparables. However, if a short sale or reo comparable is in poor condition, it would be good for the appraiser to know that info.
0 votes Thank Flag Link Fri Jul 27, 2012
Tim,
It's the market's best indicator of relative value.
His home may not be a distressed property but the market his home is in is. As the market gains strenght and the distressed properties are sold the inventory will decrease and the market values will gradually rise and the rising tide will lift all boats.
0 votes Thank Flag Link Tue May 22, 2012
YES it is! Short Sale and Foreclosures make up nearly 35% of home sales in King County along. That IS the new price point. To sell you must compete and so those should be included. By law, once the % of distressed properties reach 25% they must be included. We'll be well above that for years to come.
0 votes Thank Flag Link Mon Mar 12, 2012
When doing my BPOs I exclude shortsales because I also don't see these properties as truly comparable to a standard, non-distressed sale. I will use bank-owns.

Appraisers are very much 'under the gun' now and they have to conform to the local market and only very recent sales. This, unfortunately forces them to use comps that are necessarily the best. It's a 'technical' view...and the view most banks are desperately clinging to because the market is still too shaky.
0 votes Thank Flag Link Sat Mar 10, 2012
Your questions is specific, but allow me to generalize:

When we do a BPO, we have a space for special considerations; such as concessions, closing costs and financial deals: I believe that Appraisers have this space too. It should make for a level playing field. In fact, it really has to!

When we do a CMA, for our client we have the same problem: Since >80% of the sales are SS or REO's, it is impossible to ignore them. We could do 2 CMA's, one with "normal" sales and another with all sales; but what would that accomplish?

When outside people, (you know, all those people who aren't Realtors) read an Appraisal or a CMA, are they taking all this into consideration? I would bet not.

I took a STATISTICS course when I was in college, (yes, we wrote on slate, but it was good slate!), and it made me paranoid for numbers and way they can be twisted to prove the preceived point. But our clients rely on us to give them the straight scoop AND to explain it.

And 2-3 years from now, are we going to ask the same question, only in reverse?
0 votes Thank Flag Link Sun Jul 10, 2011
Tim,

This is a very good question and is coming up with sellers all the time now. With as many Short sales and REO's that are on the market now, they are the direct competition of your sellers home. Some buyers will look at the difficultness and longer time lines of purchasing a short sale or REO and the possible condition, but at the end of the day they are still part of the current market and have to be included.
0 votes Thank Flag Link Thu Mar 10, 2011
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