How are foreclosures factored into comps? (sale, property, value, buy)

[CouponJack]

I think the answer is that it depends. If you have a large subdivison w/a small amount of foreclosures, then it really shouldn't be factored, however there are many towns in CA bubble states that have had a rediculous amount of foreclosures. If you are looking to buy/sell in those markets, it cannot be ignored.



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[Goodpasture]

Originally Posted by CouponJack

Why doesn't it reflect "true market conditions?"

Because it is a sale under duress.

Originally Posted by CouponJack

People have lost homes and their lives because they took on more than they could chew. That's what started this mess in vegas, & especially CA.

That they paid more than they should does not affect market value.

Originally Posted by CouponJack

Of course you have to throw it into the mix.

Unless the market is saturated with foreclosures NEVER include it in the mix.

Originally Posted by CouponJack

Do we only use statistics when its in our favor?

You use hard data to reveal reality, "favor" plays no part of the appraisal process. We report it as it is, not as someone would like it to be.

[CouponJack]

All I know that if I was a buyer, I wouldn't want it hidden from me that there are multiple homes in a neighborhood in foreclosure. It would affect ME in my decision making. Maybe not everybody but again, it shouldn't be ignored.

[magellan]

Originally Posted by Goodpasture

Because it is a sale under duress.
That they paid more than they should does not affect market value.

Unless the market is saturated with foreclosures NEVER include it in the mix.

You use hard data to reveal reality, "favor" plays no part of the appraisal process. We report it as it is, not as someone would like it to be.

What is considered "saturated"? Is it 10% of homes for sale in an area? 20%? Is there an industry hard/fast rule?

Just curious.

[North_Raleigh_Guy]

Thanks for the great replies. FWIW, I am in a small subdivision (only 60 homes) and this has been the only foreclosure in the past 18 months and we all saw it coming (home was not maintained at all, owner was delinquent on HOA dues for 8 months ect) and I have no reason to expect a flood of foreclosures in the neighbirhood. There are sales regularly in my neighborhood so I imagine 6 months from now there will be 4 more recent sales after this foreclosure is sold. My neighborhood is comprised of very similar homes with almost identical upgrades, lot sizes ect... so just about every sale is considered a good comp.

Thanks again for the great explanations!

[Goodpasture]

Originally Posted by magellan

What is considered "saturated"?

When the majority of homes being sold are foreclosures and the typical listings are showing significant decline in value

Originally Posted by magellan

Is it 10% of homes for sale in an area? 20%?

Closer to 80% or more

Originally Posted by magellan

Is there an industry hard/fast rule?

No

[Goodpasture]

Originally Posted by CouponJack

All I know that if I was a buyer, I wouldn't want it hidden from me that there are multiple homes in a neighborhood in foreclosure. It would affect ME in my decision making. Maybe not everybody but again, it shouldn't be ignored.

If you are the buyer, unless the lender gives written permission, I won't talk to you anyway.....federal laws prohibit disclosure of confidential information, and the same laws list appraisals as confidential information. Your buyers agent should provide you with an analysis of a neighborhood, complete with typical marketing times and and the absorption rate.

[DanielChang]

Originally Posted by Goodpasture

If you are the buyer, unless the lender gives written permission, I won't talk to you anyway.....federal laws prohibit disclosure of confidential information, and the same laws list appraisals as confidential information. Your buyers agent should provide you with an analysis of a neighborhood, complete with typical marketing times and and the absorption rate.

I do not understand how foreclosures are confidential information. Aren't they in public records? I can understand the nondisclosure if the bank orders the appraisal, but can't individuals order appraisals too?

[yellowsnow]

I think what you are talking about is going to hit us next. The arms have only now begun to reset and there will be a lot of foreclosures coming in the near future. I had my home appraised in July and the only comps the appraiser could find that had sold within the past 6 months were distress sales. One was an estate sale where the owner had died and the other 2 were sold by a bankrupt builder. And of course, the value of my home went down. It is now worth less than it was in 2000. That's 8(eight) YEARS ago.

I think we heard some nice words earlier in this thread but I believe the truth is that every give-away sale in your area will lower the value/price of your home. And lets face it; if the last 5 homes in my area sold for 250K, chances are that's all my house is worth too. It doesn't matter that they were foreclosures. Even if the appraiser doesn't use them, your prospective buyers agent will. The fact that MY house isn't a foreclosure doesn't make it worth more money. Sorry!

[walidm]

A knowledgeable buyers agent doesn't use foreclosures as comps - exactly for the reasons stated above.