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Short Sale Question

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StateCertJoe

Thread Starter
Freshman Member
Joined
Apr 20, 2008
Professional Status
Certified Residential Appraiser
State
Florida
I have my 1st short sale appraisal order. Forgive me if my question sounds stupid, but when doing a short sale or foreclosure, are you supposed to use short sale or foreclosure comps? And if so, what if there are none in the development. Do you look outside the development as usual? OR, are we still supposed to try to find arms length sales if any?
 

toddmallard

Junior Member
Joined
Oct 4, 2007
Professional Status
Certified Residential Appraiser
State
Georgia
The market will tell you which to use. Are there any other Short or Forclosure sales in the area?. Are there active Short Sales in the area?. What is driving the market. Here in So. Fla. the market is being driven by shorts. I have seen many short sales that were not accepted by the bank, cause the Un-informed appraiser did not take into consideration that there were many short sales and active shorts. The value derived by the appraiser was much higher than the asking price, and the bank would not sell. just be sure to compare Apples to Apples.
 

Jerry Bone Jr

Senior Member
Joined
Feb 23, 2004
Professional Status
Licensed Appraiser
State
Oregon
If the assignment is to form an opinion of Market Value, then the comparable sales should be "arms length".
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
I would suggest you ask your client if they want an opinion of market value, or what they actually are looking for.

Also, I would highly recommend that yo obtain training ASAP in doing REO/Foreclosure appraisals. The NAIFA and the AI have good text on the subject.
 

Joyce Potts

Elite Member
Supporting Member
Joined
Feb 6, 2005
Professional Status
Certified Residential Appraiser
State
Florida
Ok people, what makes a so called short-sale, not arm's length? Especially when it's been on the market 30, 60, 90, 120 + days?
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
Ok people, what makes a so called short-sale, not arm's length? Especially when it's been on the market 30, 60, 90, 120 + days?

A short sale denotes a sale for less than what is owed on it. It may or may not be at current market value.
 

Joyce Potts

Elite Member
Supporting Member
Joined
Feb 6, 2005
Professional Status
Certified Residential Appraiser
State
Florida
A short sale denotes a sale for less than what is owed on it. It may or may not be at current market value.

Perhaps in your market. In my market, overwhelmingly these 'so called' short sales are setting the market. What the current market value has to do with what is owed should have no relevance.

What's more important is the analysis of the marketing history on these types of offerings. The original list prices, days on market, etc., is something I provide ON EVERY COMP I USE.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Short sales can be the market as can REO properties. I agree with Todd on this one. I've seen short sales overappraised because the appraiser is ignoring REO and short sale properties that sold in the market, and I've seen privately owned sales underappraised because the appraiser is relying on REO and short sale properties when there are recent, in market, competitive private sales available that sold higher due to a market preference for non-Bank influenced sales.

Every market is so different when it comes to this though. Taking a course is good; but also nose to the grindstone and talking to agents and other market participants, and reading time on market, and the nature of a particular short sale or REO is essential.

In my markets most REO and short sales are arms length sales and reflect conditions within a market. The question is, Which market? Sometimes they are in their own market, sometimes they set the lower end of an overall market area, and other times they are the market period.
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
Short sales can be the market as can REO properties. I agree with Todd on this one. I've seen short sales overappraised because the appraiser is ignoring REO and short sale properties that sold in the market, and I've seen privately owned sales underappraised because the appraiser is relying on REO and short sale properties when there are recent, in market, competitive private sales available that sold higher due to a market preference for non-Bank influenced sales.

Every market is so different when it comes to this though. Taking a course is good; but also nose to the grindstone and talking to agents and other market participants, and reading time on market, and the nature of a particular short sale or REO is essential.

In my markets most REO and short sales are arms length sales and reflect conditions within a market. The question is, Which market? Sometimes they are in their own market, sometimes they set the lower end of an overall market area, and other times they are the market period.

In my market, short sales are typically the bottom of the market. Given time, this type of sale may set the market in some neighborhoods. That has not happened here yet. I agree tho that the amount owed on a short sale does not dictate what it's current market value is. In some cases, the current market value may be below what is owed.

We do have another significant problem in my market. It is not unusual for the tax assessment to be more than the comps sales price and the subjects sales price. this area is significantly over assessed.
 

timd354

Elite Member
Joined
Jan 11, 2008
Professional Status
Certified Residential Appraiser
State
Maryland
Ok people, what makes a so called short-sale, not arm's length? Especially when it's been on the market 30, 60, 90, 120 + days?

A short sale is typically an arms length transaction, but, one has to be careful of when and how they use short sales in an appraisal report since short sale sellers may not be typically motivated sellers. The property owner in a short sale has a mortgage which has a higher balance than the value of the property, thus the property owner often does not care what price the property sells for since he is getting nothing out of it anyhow. The bank has an interest in getting the most they can out of the property, but it seems to me that many of them are just plain incompetent....I know of a recent short sale that was approved with just a CMA done....the dumb bank did not even order an appraisal. REO owned property sellers also have different motivations from a "normal" seller.

Thus, if there is a sufficient number of appropriate non-short and non-REO comparable sales, it is better to use those sales.

That being said, it is very true that short sales and REO properties are driving the market in some areas and it would be appropriate to use short sales and REO's as comparables in those areas.
 
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