Home Selling in Gulf Shores>Question Details

Shane Willis,…, Real Estate Pro in Pensacola, FL

Should appraisers use foreclosures as comps? 4 states are considering laws that prohibit foreclosures to be used as a comparable. Thoughts YES or NO??

Asked by Shane Willis, mba, Pensacola, FL Sat Apr 16, 2011

I read the following article and it made me wonder what the real estate community thought of it

Distress sales used as comps: Right or wrong?
CHICAGO, Ill. – April 6, 2011 – Should residential appraisals use distress sales as comparables? It’s a thorny question and some state governments are weighing in on the issue.

A Realty Times article notes that using distress sales as comparables in a normal market is often considered inappropriate because such sales are unusual and do not represent the standard market. However, nowadays in many markets, distress sales may comprise 30 percent to 40 percent of current sales activity and are impossible to ignore.

Four states are considering laws that would affect how appraisers should consider the sale of distressed properties.

You can find the whole article at:
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=257972

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What are the two components to a deal? Price, and terms - right?

For years, we've just been focused on price. Price, price, price, price, price!! And that's worked out, let's say, just fine.

Well, now we have "terms" affecting price, and affecting value. Do any of these conditions affect value: a move-in ready home that can close in thirty days, a bank-owned home that's been "winterized", a short sale that can take three to nine months to close, a courthouse-steps sale that's cash on the barrelhead?

Frankly, I can see the merit in going UP the ladder in an appraisal - it's a short sale and we're comping it to ready-to-go homes. But to comp a ready-to-close home with a winterized bank-owned home?
0 votes Thank Flag Link Sat Apr 16, 2011
Shane,
In general, I would prefer all distressed properties be considered in a separate category from nondistressed properties. The problem is I've been in some bank owned and short sale homes in better condition than some owner occupied nondistressed homes. This is not the rule however.
My advice to my buyers regarding short sales is that they have to be a good deal to risk the time and potential heartache you have to go through to get them. Banks holding out for "nondistressed market value" are deluding themselves, their investors and the public in the current way things are processed. If a short sale could be processed and closed in 60 days or less, the values would easily be higher.
Should distressed properties be used for comps? Only if the appraiser factors in condition and adjusts the value due to being distressed appropriately.
1 vote Thank Flag Link Sat Apr 16, 2011
Appraisals are supposed to be unbiased assessments of a property's value. Foreclosures tend to sell at big discounts from the actual value.
Web Reference: http://www.clovelake.com
0 votes Thank Flag Link Fri Aug 12, 2011
Whatever it takes to keep the prices sky high and banks rich.
0 votes Thank Flag Link Fri Aug 12, 2011
Most if not all appraisers do not want to use foreclosures as a comp for a non distressed sale--HOWEVER, when the only comps available for a particular area are foreclosures there really is no other option. I do believe when used they should be adjusted fairly as to condition, and the fact that they are "distressed".
0 votes Thank Flag Link Sat Apr 16, 2011
Think about it.......

What would you use for comps in areas that are mostly foreclosed properties and they are the only homes that are selling.

As I see it to enforce such legislation would falsely create market value. Transaction may occur but what will happen to the home's value in the long run.....it would seek the level of the current market activity.....I really don't see it as a solution for a problem but the potential for creating an even bigger one.

Respectfully,

Bill
0 votes Thank Flag Link Sat Apr 16, 2011
Recently I assisted a client in the revaluation of some properties he owns to lower his tax burden. By state law, the city assessor cannot use foreclosed or short sale closed comps when determining value. This can make it extremely difficult when an area has been hard hit by foreclosures and all the recent sold comps are foreclosures and short sales.
0 votes Thank Flag Link Sat Apr 16, 2011
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