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Short Sale = Distressed Sale?

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Anthony Torres

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Jun 16, 2003
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Banking/Mortgage Industry
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New York
Hoping someone can help me out with this question. Is short sale considered a distressed sale?

If a property is appraised at the time of purchase at $400,000 and the lender takes a loss on the mortgage and accepts $300,000 would that property now be used as a comporable sale with a sales price of $300,000?

Or....would that property be looked upon the same as a foreclosure sale, meaning a distressed sale?

Thanks in advance for any clarification anyone can provide.
 

Smokey Bear

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Dec 8, 2004
Professional Status
Certified Residential Appraiser
State
California
A short sale is definitely a distressed sale. The seller is getting the lender to take a write down on the loan in order to sell the property before foreclosure. It's harder to arrange, the buyer needs to convince the bank that it couldn't get a better deal going to foreclosure.
 

toddmallard

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Oct 4, 2007
Professional Status
Certified Residential Appraiser
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Georgia
It depends on the circumstances. in the areas where we do appraisals, and the bulk of the sales are short, than these are the comps used at this time. Unfortunatly we can't complety disregard the obvious market conditions and state that the subject is worth a bunch more, when even most short sale are on the market for a while.
 

Anthony Torres

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Sophomore Member
Joined
Jun 16, 2003
Professional Status
Banking/Mortgage Industry
State
New York
Thanks for the clarification. I'm hoping you can answer 2 more questions for me.

Say the short sale was indeed approved by the lender and someone buys the home at $300,000. However, at the time of purchase the property appraised at $390,000. Now a year later the buyer wants to refinance his/her home. Does the distressed sales price of $300,000 have an effect on the true market value for that home a year down the line?

Also, as we can find out through public records if a property was foreclosed on, does the same hold true on short sales? Do short sales actually record in public records as a short sale or other verbiage?

Thanks.
 

Restrain

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Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
However, if all the sales are "short-sales" or "foreclosures", then the sale does become the market. One important thing for people facing a short sale is that a 1099 will be issued by the lender for the loss. So, if the lender wrote off a $100K loss, the borrower is going to be facing a tax liability for that same $100K.
 

The Dog

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Joined
Apr 18, 2005
Professional Status
Certified General Appraiser
State
Oregon
It is a distressed sale. However, it may represent the market value of the property depending on the market conditions. We have one or two market in my area where the vast majority of sales are short and foreclosures. One small little city (about 2,000 people) has over 59 active lisings and 46 are foreclosures and short sales in MLS right now. In that area those sales are driving the market. They are moving the other sales down. And we still have appraiser marking the area as stable.

I compare todays market with the market in the early 1980's when 80% of the sales we had were foreclosures. We are slowly but surely getting there again. Unfortunately, a lot of appraisers have never experienced a strong down market and may not know how to handle them.
 

jakeboeger

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May 12, 2005
Professional Status
Licensed Appraiser
State
California
A short sale or a bank owned sale can both be used as comparables.
Depends on the market and the appraisers judgement
 
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lizhorvath

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Dec 11, 2003
Professional Status
Licensed Appraiser
State
Michigan
In public record, you might see a foreclosure sale (the transfer from the owner to the bank) listed as a Sheriff's Deed or a Quit Claim Deed to the bank.
Typical, arms length transactions are usually Warranty Deeds.
 

toddmallard

Junior Member
Joined
Oct 4, 2007
Professional Status
Certified Residential Appraiser
State
Georgia
Market Yes, Appraiser Judgement NO.
If the market shows many Shorts than use it. If its the only one don't. There should be no judgement call here. If there are short sales and this is the last short and its for less than the others, Than a judgement call would be to disregard it, as its lower than the rest. I understand what you are saying jake, but leaving this up to the judgement of the appraiser is not always the proper thing to do. I have always stated in the past that some of these guidelines need to become "law", For example Short sales if over 2% of the market than it must be used, or not be used, what ever, but make it more of a condition than a guideline.
 

leelansford

Elite Member
Joined
Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
...the short sale was indeed approved by the lender and someone buys the home at $300,000. However, at the time of purchase the property appraised at $390,000. Now a year later the buyer wants to refinance his/her home. Does the distressed sales price of $300,000 have an effect on the true market value for that home a year down the line?
...


Thanks.

Remember...PRICE does not equal VALUE.

That's not to say that a refinance of a recent purchase due to "short-sale" would not require comment and analysis by the appraiser...because it sure would!
 
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