Considering foreclosure sales in comps 1-3?

[Lawrence R.]

I am facing this for the first time but here is the gist of it.

I am working in a rural area, but the density is decent. There are some very comparable homes that have sold within 2 miles of the subject...one of which is just down the same street about a half mile.

The problem is, all three of the sales I like the most, for similarity and proximity--are REO properties.

The other sales are slightly further away, and are in small subdivisions, much closer to town. The other sales would definitely need a location adjustment, across the board. I don't particularly care about that, but we do know that will open things up for scrutiny. I suppose I could just as easily comment on the location adjustment as I could for using the foreclosures...

So, my question is this:

Use the foreclosure resales and comment to that extent, or use the more suburban sales and take the location adjustment.


Also, the contract for sale seems to have been heavily influenced by the closer foreclosure sales. The contract is much closer to the prices of the REO sales vs the others.

I hate to admit it, but perhaps this is a good argument for analyzing the sales contract. Not so much about hitting the numbers, but in this case it does reveal what is most likely affecting the sale prices in the subject area.


What say ye, forumites?

 

[Vegan702]

I have routinely used all foreclosure sales, however that is my market currently as 80% of our sales our REO properties. However it seems you have been able to identify a difference in selling prices between REO properties and non-bank owned properties that have sold. Maybe use all of them?

 

[Lawrence R.]

I have routinely used all foreclosure sales, however that is my market currently as 80% of our sales our REO properties. However it seems you have been able to identify a difference in selling prices between REO properties and non-bank owned properties that have sold. Maybe use all of them?

Well, it isn't that I can't identify a difference, unless that is to say that there is no data either way. There is a lower price point on the foreclosure sales, and they are the majority of what I am finding, though not 80%, maybe 55-60%. The other non REO sales are not exactly in the same market, though there may be some overlapping of potential buyers.

I think including them both is the direction I am going.

Thanks.

 

[Lee Lansford]

When and where appropriate (and, in my practice here in "Chicagoland", I have not had an appraisal where it was anything other than appropriate), I avoid analyzing the subject vs. REOs. Reason: There are non-REOs available and I have found that non-REOs sell for a higher price.

 

[Lawrence R.]

When and where appropriate (and, in my practice here in "Chicagoland", I have not had an appraisal where it was anything other than appropriate), I avoid analyzing the subject vs. REOs. Reason: There are non-REOs available and I have found that non-REOs sell for a higher price.

I would tend to agree. Usually, there is no dilemma for me, either. Just in this case, the only sales suitable for comparison in the subject's immediate marketing area are REOs, while the non REO sales are basically of a different nature.

 

[Green Hornet]

I would tend to agree. Usually, there is no dilemma for me, either. Just in this case, the only sales suitable for comparison in the subject's immediate marketing area are REOs, while the non REO sales are basically of a different nature.

Given what you present, I would be include the REO, determine the discount for an REO and make the necessary adjustment...condition, fast sale, etc.

Then include the other suburban comps and adjust location accordingly. Then explain.

I have been hesitant to include REOs if they are not a driving force in the market, but it seems that your location issue is a strong motivator to include such.

My .01. Good luck

 

[Mike Kennedy]

3 REOs in the immediate vicinity plus 1-2 dated immediate vicinity Closed Sales, 1-2 gridded active listings (if truly similar) in the immediate vicinity, plus 1-2 MOST similar (except for location) would, IMO, be appropriate (all adjusted for respective variances) to reliably demonstrate the LOCAL market value trends and competitive nearby values and close the door behind you.

 

[Lawrence R.]

Further searches provide.

Thanks to all. here is the end result. Order may change, but you get the idea.

comp1 within 1mile

comp 2 within 2 miles Location adjust.

comp 3 8 miles. NO location, very similar rural property.

comp 4 REO within 1 mile Adjust for condition--kinda inclusive of the REO factor, but just not enough data to axtrac an ACTUAL REO adjustment.

gotta love it.

 

[Metamorphic]

I would use them, but when you discuss that absorption data at the top of page 2 of the 1004, I would parse the current listings and sales from the last year into which are REO listings/sales and which are normal or resale sale/listings. Provided REO's make up the lion's share of both you will have gone a long way to substantiate your use of them as comparables.

The only other thing you might consider is an analysis of the sales prices of REO's vs resales to see if there's a margin there. Most places I work where the market has never been overwhelmed with REO's, where development in the early 2000's was never able to meeting demand (hence some residual, unsatisfied, demand in the area which maintaines values), and which have a high degree of un-tract like niche market desirability (IOW, one property is NOT just like the one down the block) REO's and shorts sell for anywhere from 5% to 15% under the resales. Other areas that are less desirable, dominated by REOs, and where there is a great deal of interchangability between properties, the resales are right down there in the mud with the REO's.

 

[Lawrence R.]

I would use them, but when you discuss that absorption data at the top of page 2 of the 1004, I would parse the current listings and sales from the last year into which are REO listings/sales and which are normal or resale sale/listings. Provided REO's make up the lion's share of both you will have gone a long way to substantiate your use of them as comparables.

The only other thing you might consider is an analysis of the sales prices of REO's vs resales to see if there's a margin there. Most places I work where the market has never been overwhelmed with REO's, where development in the early 2000's was never able to meeting demand (hence some residual, unsatisfied, demand in the area which maintaines values), and which have a high degree of un-tract like niche market desirability (IOW, one property is NOT just like the one down the block) REO's and shorts sell for anywhere from 5% to 15% under the resales. Other areas that are less desirable, dominated by REOs, and where there is a great deal of interchangability between properties, the resales are right down there in the mud with the REO's.

Morph,

I did have enough overall data to make a reasonably defended adjustment for the REO factor, and it was about 10%, so I made the adjustment. I also made a small adjustment for condition when it was all over, but tried not to double dip the REO factor, as many rural REOs do not get the same tender care that ones in restricted subdivisions get in my market.

Overall, I came in a little below the contract value, which was 74,900 for an 1100SF house, complete remodel/rewire, etc..

I could only defend 70,000. I think everyone will live.

PS, we may be getting snow tonight...I almost want to go retake the subject pictures just to commemorate it!!