Which set of comps to use?

[Kien Nguyen]

I am appraising a "bank-own" propery, there are two sets of comps found in the neighborhood in the last 6 months:
- Four sold for $520K - $550K: normal transactions.
- Four sold for $430K - $480K: short sales and/or bank-own properties (notes on MLS).

Subject is a bank-own property. There is no active listing, pending found in the neighborhood included the subject property.
Sale price falls in the bank-own/short sales range.

Which set of comps is appropriate ?

 

[Wendy]

Which set best reflects the current market and is the most similar to your subject?

 

[phoebe33764]

In my opinion, since the OP stated that he is doing a bank owned appraisal and the sales are split, bank owned and non bank owned, I would place primary consideration on the bank owned as long as they were most similar to the subject.

 

[Michigan CG]

In my Market I can PROVE a 10-15% stigma on bank owned properties.

 

[Tom McDowell]

There is only one set of "comps." Do not confuse sales with comparables. What is the market, what is your clients guidance? Does your client want market value or do they want something else?

You have 8 sales not 8 comparables.

 

[Joyce Potts]

How can you overlook the short sales and foreclosures when your data is 50/50? With the exception of physical differences as to condition, if the bank owned/short sales or BOSS's are competing for the same knowledge, qualified buyers in the open market, I would argue they are definitely having an impact on market values. If they're priced lower, then why would a buyer pay more for a non-bank owned listing, all other things being equal?

In my market of Central Florida, the sales we have to work with in some areas are overwhelmingly bank owned or short sales. In many cases, they are clearly redefining the market.

The other MAJOR point I want to make is the current Realtor trend in using and abusing the terms 'short sale' or 'pre-foreclosure'. Frankly, if I have a MLS listing that contains those terms, yet the days on market are excessive--I'd like someone to explain to me what is 'short' about a listing that's been on the market 90, 120, 180, 200, 300+ days?

 

[Kevin Keck]

Why does it matter who owns the subject? Select those sales most similar to your subject without regard to ownership at the time of sale. Bank owned properties and short sales do impact the market. That said, because of atypical seller motivation, they may not be good indicators of market value. Important clues regarding seller motivation might be DOM and sale to list price ratio.

Mr. Evans (or others with similar research/views), to what factors do you attribute the stigma? As a potential buyer of bank-owned property I could see myself more motivated to seek a deal for bank-owned property. It is also more likely that a bank, motivated by different set of financial realities, will be more likely to grant such a deal. Does this equate to stigma?

 

[Mztk1]

The other MAJOR point I want to make is the current Realtor trend in using and abusing the terms 'short sale' or 'pre-foreclosure'. Frankly, if I have a MLS listing that contains those terms, yet the days on market are excessive--I'd like someone to explain to me what is 'short' about a listing that's been on the market 90, 120, 180, 200, 300+ days?

I don't know if you are being faecious here or not, so I will pretend you are not.

Short Sale and quick sale are not synonymous. A short sale is when a bank is going to have to agree to allow a house to be sold because the market value of the house is below what is owned. The proceeds of sale comes up short to cover the house debt. It is a way to save the bank the money and time of foreclosure and the owne/seller the credit destruction.

It is very, very common for short sales to stay on the market longer because after contracts are offered, then cannot be signed until the bank (sometimes two banks) approve. That can take weeks if not months.

As for the OP, as long as the bank owned and short sale houses are competing in the open market, they are to be considered as comparables. Chances are, they are your best comps because they are more similar. I'd use at least one regular market sale and then extract a stigma adjustment for the REO ownership. I'd also include at least one REO listing and regular market listing, preferrably two REO listings, and if any are pending, even better.

 

[Mztk1]

Mr. Evans (or others with similar research/views), to what factors do you attribute the stigma? As a potential buyer of bank-owned property I could see myself more motivated to seek a deal for bank-owned property. It is also more likely that a bank, motivated by different set of financial realities, will be more likely to grant such a deal. Does this equate to stigma?

The stigma attached to an REO property is an economic form of depreciation. Residential houses are purchased by the typical buyer on emotion, they are purchased by the typical REO buyer by reasoned investment potential. REO properties tend to suck the positive emotions out of the typical buyer because any joy they have of owning that house to live in is attached to the sorrow of the family or person they imagine who has just lost it. That ambivalence is the stigma and very often turns the traditional Mom and Pop buyer away unless they are exceptionally frugal, or one can convince the other of the deal they are getting, or -in rare instances - the house is their dream house and no amount of empathy for those that lost it is going to affect their feelings on it.

 

[Kien Nguyen]

8 sales not 8 comparables

There is only one set of "comps." Do not confuse sales with comparables. What is the market, what is your clients guidance? Does your client want market value or do they want something else?

You have 8 sales not 8 comparables.

It is correct, I have 8 sales, my bad....
My initial thought was the same as some posters. As a buyer in the open market, I definitely look at the bank-own properties in the neighborhood. Why the buyer(s) should pay more if the available properties are similar, somewhat comparable.

In the appraisal report which is for a mortgage finance transaction, I may include some "no-arms length" sales in the market condition analysis section.