REO or short sale as comparable

[Pat Butler]

Excellent explanation Richard.

 

[Mike Garrett RAA]

The market is the market ... and if that is bank owned REOs or Owner in Trouble (short sale), then it is what it is.

 

[Brad Ellis]

Nightshade,

But what about the problem that occurs when the most similar, proximate properties that are perfect comps are short sales or REOs

Ready to do some research?

Why would these be the best comps? Were they sold with both buyer and seller being typically motivated? Or is it that they are the most similar physically?

You are the one who must do that research and decide. Is that all that is happening in the market? If so then you have a reaonable basis to state that the shorts and REOs are the market and then there is no problem using them.

But you are seeking market value for the refi and these transactions do not meet the definition test unless you can demonstrate the aforementioned.

So, will typical buyers and sellers agree to terms around that price or not? If not then using them would provide a false or less than accurate value. If yes, then no problem.

Good luck.

Brad

 

[Lloyd Bonafide]

Some good advice from the above posters.

I guess all I can tell you is "it depends". If 5% of the recent sales and active listings are REOs, I would tend not to use the REO comp. If 40% of the recent sales and active listings are REOs, I would definitely use the REO comp.

If you are still unsure, then use the REO comp. If you have to, use four+ recent sales, and 1+ active listings in your report, and you may feel it necessary to explain that "Comp #2 was a bank REO, and may have sold slightly below market value".

 

[Mike Garrett RAA]

I would always use an REO sale before I would use a listing as a comparable. When do REO sales become "the market"? That is a question that varies from market to market. Property type should also be considered. IN MY MARKET ... REO sales are the market for manufactured homes.

 

[Deuce of Spades]

REO and short sales are the market here in many areas. One thing to note on a short sale is that just because they offer the home at such a low list price, does not mean that the bank will take that offer, therefore, there is not going to be a sale and it will then just fall into foreclosure (and probably sell for less in the long run). I do note short sales in my listings bc I do primarily REO work and that is direct competition for the REO - I interview each realtor to see what kind of activity there has been and at what list price might have triggered an offer. That trigger price is very important, not that the bank will take the offer, but does provide to me some market evidence.

I just hung up w/ a realtor that said their REO has has 3 offers, at higher than current list, but that the financing is falling apart each time. The buyers are not educated and are going out and buying new cars or opening new credit cards just before closing and then the bank kills the deal. Tight Financing is killing our market just as much as the oversupply. But then again, most of these buyers don't deserve to own a home in the first place....imo

 

[ddcarrier]

In my market, short sales appear to be sitting on the market because of the time and headache to work with the lender to get the deal done. From what I hear from realtors, lenders won't disclose what they are willing to take for a property and once an offer is submitted, they can't get anyone to return their calls. Also, there is no guarantee they will accept the offer even if it was at a price they suggested!!! So...I think in this market realtors are being very up front about the ups and downs of buying a short sale property. Therefore, I tend to take these sales on case by case basis depending on what market segment I am looking at.