Distressed Properties were used for all comps!

[Nicole Welch]

Hello All, this is my first post. I am in the process of purchasing a property using my VA loan. I just got my appraisal report and apparently the appraiser used all distressed property sales for the comps. My RE is saying that this is against the guidelines. Is this true? I am so confused, stressed and distressed right now. Any insight would be deeply appreciated.

 

[Randolph Kinney]

The use of distressed sales depends. Are there any non-distressed sales close by and recent? If so, those should be considered and used if truly comparable to your home-purchase.

If the distressed sales are truly comparable and compete with your property, then they should be considered.

Did you look at any distressed properties before making an offer to purchase the non-distressed property?

 

[Mike Kennedy]

Question #1.
http://www.benefits.VA.gov/homeloans/cavfaq_appraisals.asp

 

[residentialguy]

It is not "against the guidelines", but REOs may be all he had for comps. If he had traditional arm's length sales that were good comparisons, he should have used those. And if there is a market reaction to REOs, ie stigma, undue stimulus, physica condition, etc that caused them to sell for less, they should have been adjusted because market value is a sale that is not affected by influences such as stigma, or undue stimulus in selling. And often the REO is in poor condition. The appraiser also has to take into consideration special financing, such as Homepath and some FHA programs that these REOs have.


Did you purchase a REO?

 

[Laurie Collins]

If those type of sales dominate the market area then they absolutely should have been used in fact, it would have been wrong NOT to have used them.

 

[residentialguy]

If those type of sales dominate the market area then they absolutely should have been used in fact, it would have been wrong NOT to have used them.

ABSOLUTELY FALSE!!!! Dominance of a distressed sale type does not mean they are the best comparable to use. We are to use the best comparable that reflects the MV of the subejct. The GSEs do not require an appraiser to use REO or short sales as comparable sales. However, if the appraiser determines that these properties are representative of the properties available to typical purchasers for the market in which the property is located, the appraiser must consider their use. When using an REO sale or short sale as a comparable sale, the appraiser must make appropriate adjustments to account for any market reaction to differences between the REO or short sale property and the subject property, including, but not limited to, differences in property condition. Additionally, the appraiser must consider whether there is any significant difference in the market’s reaction between REO or short sales and typical arms-length market sales.

 

[Nicole Welch]

If those type of sales dominate the market area then they absolutely should have been used in fact, it would have been wrong NOT to have used them.

actually there are regular sales in the same area. The properties he used were short sales and REO's. The area is Vallejo, CA near the Glen Cove area. My RE provided similar comps for regular sales on comparable properties but even Zillo valued the property at 182k, the appraiser came in at 172k. A VA loan can only be for properties that clear section 1 and 2 of the termite inspection. That seems to limit me when looking at short sales and foreclosures.

 

[Laurie Collins]

ABSOLUTELY FALSE!!!! Dominance of a distressed sale type does not mean they are the best comparable to use. We are to use the best comparable that reflects the MV of the subejct. The GSEs do not require an appraiser to use REO or short sales as comparable sales. However, if the appraiser determines that these properties are representative of the properties available to typical purchasers for the market in which the property is located, the appraiser must consider their use. When using an REO sale or short sale as a comparable sale, the appraiser must make appropriate adjustments to account for any market reaction to differences between the REO or short sale property and the subject property, including, but not limited to, differences in property condition. Additionally, the appraiser must consider whether there is any significant difference in the market’s reaction between REO or short sales and typical arms-length market sales.

That's what I said. You just gave the narrative. I gave the short answer.

 

[Webbed Feet]

actually there are regular sales in the same area. The properties he used were short sales and REO's. The area is Vallejo, CA near the Glen Cove area. My RE provided similar comps for regular sales on comparable properties but even Zillo valued the property at 182k, the appraiser came in at 172k. A VA loan can only be for properties that clear section 1 and 2 of the termite inspection. That seems to limit me when looking at short sales and foreclosures.

Zillo results don't have enough meaning, relative to a real estate appraisal, to be used to suggest any real estate appraisal might be incorrect.

 

[Koya]

actually there are regular sales in the same area. The properties he used were short sales and REO's. The area is Vallejo, CA near the Glen Cove area. My RE provided similar comps for regular sales on comparable properties but even Zillo valued the property at 182k, the appraiser came in at 172k. A VA loan can only be for properties that clear section 1 and 2 of the termite inspection. That seems to limit me when looking at short sales and foreclosures.

I happen to have access to Vallejo MLS and searching for sales in the Glen Cove area for the last 6 months in the range of $150-200K, I find there are 22 transactions. Of these 20 are distressed; only 2 are not. I also searched for active/pending listings and there are 21, of which 18 are distressed and 3 are not.

Unfortunately it appears your market is heavily dominated by distress sales, even though there are a few non-distress sales. If your appraiser did a good job, he would have considered non-distress sales that were otherwise similar to your property first; but if there were none then he used what he had and made such adjustments as he felt appropriate based on available supporting data.

My only suggestion would be to get your real estate agent to pull the non-distress sales within the recent time period, 6 months or less, look at them and compare them with the comparables the appraiser actually used. Have the agent send the most similar to the appraiser with the request: "Did you consider these comps?" The appraiser may have specific reasons that they are not as similar as you or your agent might think, but it's a shot.