Distressed Properties were used for all comps!

[residentialguy]

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

No, you did not. You said,
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.


That's absolutely false. IT WOULD BE WRONG TO USE THEM (REOS/SSs), if they were not the best comps reflective of market value of a sale with undue stimulus to sell, similar conditon of sale, similar physical condition, no special financing, etc.

 

[Nicole Welch]

Thank you all for your responses. I am learning as I undergo this real estate purchase. I almost want an appraiser to go with us before we even put in an offer for a house. I wish that there was a market established for pre-purchase appraisals for the purchasers.

 

[Smokey Bear]

I wouldn't have used short sales, they're just not good sales due to varying factors that have nothing to do with value. However, as noted above, Glen Cove has a huge number of foreclosures, and Vallejo in general has taken a huge hit with this financial crisis - I was appraising there during the boom and it was inflated. With that many REOs, and so few regular sales, it could be that the value is that low. How many comps were included and of what type.

 

[Lobo Fan]

No, you did not. You said,
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.


That's absolutely false. IT WOULD BE WRONG TO USE THEM (REOS/SSs), if they were not the best comps reflective of market value of a sale with undue stimulus to sell, similar conditon of sale, similar physical condition, no special financing, etc.

If shorts and REOs are 75% of the market, then that is the market. Using anything else, or adjusting upward is misleading IMHO. Most shorts and REOs are in decent shape these days. Not perfect but usually decent. Sometimes the banks will even pop for some fresh paint and new carpet. Not using the distress sales would be a bigger problem than using them.

 

[residentialguy]

If shorts and REOs are 75% of the market, then that is the market. Using anything else, or adjusting upward is misleading IMHO. Most shorts and REOs are in decent shape these days. Not perfect but usually decent. Sometimes the banks will even pop for some fresh paint and new carpet. Not using the distress sales would be a bigger problem than using them.

No it's not. it's just a certain type of sale that is selling within the market. GSEs have made it clear that you never ignore the market reaction of a REO or short sale. You use the best sales. It MAY be that the REOs are best...I dunno, depends on what's available. But the market is not REO and traditional sales are marked down because they only have 25%. That's just lunacy. The market that the banks are lending to is no longer the market? Don't try to defend that. You consider all market reactions, you don't ignore them. If there is a market reaction and you don't adjust, you're toast.

 

[Webbed Feet]

What "guidelines" are those?

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.

Given post #10, I recommend you go back to your agent and ask that they provide you the exact internet link to those "guidelines." Then while you wait, please ponder that "guidelines" does not mean "Rules."

As a buyer you certainly get to pick the subject, the appraiser gets to pick the comps.

 

[Scott R Marshall]

If shorts and REOs are 75% of the market, then that is the market. Using anything else, or adjusting upward is misleading IMHO. Most shorts and REOs are in decent shape these days. Not perfect but usually decent. Sometimes the banks will even pop for some fresh paint and new carpet. Not using the distress sales would be a bigger problem than using them.

I disagree. Using this scenario, there are still 25% of sales that are non-distressed in nature which should be considered and perhaps be the only comparables included within the report. An analysis still has to be performed to determine whether REO and short sales are selling for the same amount or less than non-distressed sales, all things else being considered equal. It is up to the appraiser to explain why distressed sales were utilized in lieu of non-distressed sales and up to the appraiser to explain the necessity for making, or not making an adjustment to them, based solely on any differences in sales price between these 2 types of transactions (or perhaps 3 as one could make the argument that short sales have a different stigma associated with them than REO's).

You appraise within the same markets I do and the worst markets are at about the 75% to 80% number of short and bank owned sales and current listings. And in every instance, where the gap may not be as substantial as those markets were the percentages are around the 25% to 35%, I have found these properties almost always sell for less than non-distressed sales within that market area. There may be a handful of exceptions from time to time but the analysis must be performed. I just did one where I had 3 sales which were non-distressed and 9 sales which were. And these 3 sales sold higher than any of the other sales, both on a sales price basis and a price per square foot basis. So I could either use those 3 sales only, or if I utilized any of those distressed sales, an adjustment had to made.

Guess which choice I made and what explanation I provided within the report substantiating why I did what I did. If the market was different and there was either no non-distressed comparable sales within the market area or there is little to no difference in the market value between the two, the approach of course would be different but in order to make such a statement, there has to be the supporting analysis substantiating any statements, lack of adjustments or adjustments you make.

 

[AnonApprsr]

The appraiser could be 100% right. What's obvious is that your Real Estate Agent or whatever advocate you have misplaced your trust in has no problem lying to you. Perhaps you should look into better representation. Perhaps hire an appraiser to consult you on your purchase. Find a local professional appraiser. They may server you better than some salesman.

 

[Lobo Fan]

I disagree. Using this scenario, there are still 25% of sales that are non-distressed in nature which should be considered and perhaps be the only comparables included within the report. An analysis still has to be performed to determine whether REO and short sales are selling for the same amount or less than non-distressed sales, all things else being considered equal. It is up to the appraiser to explain why distressed sales were utilized in lieu of non-distressed sales and up to the appraiser to explain the necessity for making, or not making an adjustment to them, based solely on any differences in sales price between these 2 types of transactions (or perhaps 3 as one could make the argument that short sales have a different stigma associated with them than REO's).

You appraise within the same markets I do and the worst markets are at about the 75% to 80% number of short and bank owned sales and current listings. And in every instance, where the gap may not be as substantial as those markets were the percentages are around the 25% to 35%, I have found these properties almost always sell for less than non-distressed sales within that market area. There may be a handful of exceptions from time to time but the analysis must be performed. I just did one where I had 3 sales which were non-distressed and 9 sales which were. And these 3 sales sold higher than any of the other sales, both on a sales price basis and a price per square foot basis. So I could either use those 3 sales only, or if I utilized any of those distressed sales, an adjustment had to made.

Guess which choice I made and what explanation I provided within the report substantiating why I did what I did. If the market was different and there was either no non-distressed comparable sales within the market area or there is little to no difference in the market value between the two, the approach of course would be different but in order to make such a statement, there has to be the supporting analysis substantiating any statements, lack of adjustments or adjustments you make.

OK, but appraisers are being sanctioned for not using distress sales as comps in areas as low as 25% of the market. Why would you adjust upwards? The substitution rule would negate that. There might be some market resistance to the time lags created by short sales, but they are still the market. Using only non-distress sales could be considered to be misleading. IMHO.

 

[residentialguy]

OK, but appraisers are being sanctioned for not using distress sales as comps in areas as low as 25% of the market. Why would you adjust upwards? The substitution rule would negate that. There might be some market resistance to the time lags created by short sales, but they are still the market. Using only non-distress sales could be considered to be misleading. IMHO.

So because 75% of the market are lender owned sales, the home occupied owners selling their homes are over market value and the market buying those homes are to be adjusted down to REO prices? Do you understand what you're saying? Do you know what would happen to the market when an appraiser won't validate the market sale of a typical homeowner? Seriously...think man. The homeowners would tell the bank that if they won't recognize a sale without undue stimulus and they will have to lower their price to REO prices...they'll throw the bank their house keys and say, "You sell it if you won't allow me to sell home occupied homes at what the market will pay for them.

You're giving the most probable the home would sell IF it were a Bank owned property.