Short Sale As A Comp

[gib53son]

I'm doing a conventional SF appraisal with limited good comps in the area. There is a very similar short sale comp within the same subdivision just begging to be used. I haven't used short sales with conventional, but wondered if there is a % range for a adjustment to a short sale if used? Thanks. Sid

 

[hastalavista]

There is no "standard" adjustment for any element of comparison.

A short-sale may or may not transact at the same price as a so-called equity sale.

My advice is to interview the agents involved: ask the listing agent if the short-sale dynamic affected the marketability and listing strategy of the home, and ask the buyer's agent if the buyers bid a discount because of the short sale status.

In other words, ask the market participants if they think the house would sell/sold at a different price if not a short-sale. Then, compare their answers against what the other (presumably non-short) sales you are looking at to see if it makes sense.
If an adjustment is warranted, explain your analysis process and make the adjustment.

Good luck!

 

[Gobears81]

I've seen short sales sell near market and I've seen short sales sell for about 35% of the appraised value (the latter was to a low-end investor that has since been investigated by the FBI). I believe the average discrepancy between foreclosure and arm's length transactions is about 22%, but that is based on dated information and certainly may not correspond to your market or this property in particular. Always remember that a downward adjustment of 20% is equivalent to an upward adjustment of 25%. That issue tends to get magnified in larger adjustments like this.

Like Denis said, there is no rule of thumb-hopefully you have some other comps to rely on and this could be a 4th or 5th comp, but if you really like that comp, don't let anyone dissuade you from using it.

 

[Deleted member 134708]

For sure use it if you lack closed sales. Luckily haven't had use one in long time but think gave it a +$25k adjustment on the "sales" line. Usually the price gap sticks out like sore thumb. Maybe go back a few years and plot your data in excel on short sale v. Non

Good Luck.

 

[residentialguy]

I wouldn't use it unless you have nothing else and need to fill space, but don't put any weight on it.

 

[J Grant]

If it was listed on MLS and sold close to/within a reasonable price range of similar property sales, nothing wrong with using it. Ask agents if any liens were paid or other monies exchanged outside of the contract price.

 

[J Grant]

With a short sale it's all about the terms. Assuming it was listed on MLS and exposed to open market, how long was it listed till sold ? Some short sales are very straight forward and sell within prevailing marketing time, others are very odd and are on market a very long time, perhaps due to either a difficult lender, or outstanding liens/HOA fees they are negotiating who will pay it. The former make good comps , the latter, not so much, or use with more explanations and discovery why was on market so long

 

[bnmappraisal]

There is no "standard" adjustment for any element of comparison.

I've seen short sales sell near market and I've seen short sales sell for about 35% of the appraised value

...and I've seen MANY short sales and REO's in my market sell for more than "arms length" properties. Then again, I'm in FL in a "popular" area for people to buy RE. I've discussed this many times with my former boss, an MAI with now 40+ yrs experience.

If a short sale or REO "makes sense" to use (and I agree with some of other posters - check multiple sources regarding "makes sense") then I use it. Often times I'll speak with the agent(s) involved, search county/public records, read everything in the MLS history, look through all MLS pics ... Many times it ends up, in my market, "they bought it at the peak, lost their job, etc and just ...(fill in the blank)" Almost 10 yrs later, I still hear this sometimes.

Now this is my personal opinion, but I think sometimes, people/buyers (investor or not) see "short sale" or "REO" and think "This must be a deal!" ... sometimes, at least in my market, that's not always the case.

 

[Pilgrum]

So! What does the market tell you. What is the median price difference between special condition sales and conventional/FHA financing. It should be fairly easy to come up with a percentage you can apply.

 

[J Grant]

A buyer can finance a short sale purchase FHA or conventional. The difference is on the seller side, and typically would only affect the buyer if the buyer is asked to pay off any liens or fees, or wait a long time to close.

Keep it simple, did the comp you are considering sell equivalent price to other sales, or for a discount, which you can adjust for/ explain , and was DOM similar to other sales.