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Sorry about the grammer in the above post.........ugh :(
I tried to "edit" the post but wasn't able to figure out how...;)
Market correction hurts.
The same way over-inflated sales prices in the bubble affected comps...so will deflated bank repo's. A sale is a sale is a sale. No matter the circumstances.
80's,
I would "respectfully" disagree with your theory.
I (having been around for the last real estate/mortgage fiasco in the early-mid 70's) see this whole problem today as much more than a "market correction" and I feel that just letting things "take care of themselves" will result in a 5-10 year....market correction which....this country's economy cannot handle IMHO.
It's time for those that were part of the problem and....we all know who they were...to become part of the solution and sitting around, doing nothing, allowing "nature to take it's course" is just not acceptable.
Thank you for your respectfulness.
Just want to add that all home sales are a "Sale of Circumstance". Every seller has a motivation, a reason specific for going to market. Pre-foreclosures (short sales) and REO's are market listings just like any other....and just like any other, they will attract buyers who are willing to pay market value (or close to it). Market value on any home (whatever the circumstance) is based on what the market will bear at the time. Considering such a large percentage of homes on the market are distressed sales, how can they be left out of the market comps equation? In some places, 1 in 3 listings are foreclosure....this cannot be ignored. As much as I sympathize with the homeowner who has lost equity and is underwater, one can't ignore what's happening in today's market.
Ignore what's happening... as in not using foreclosure sales as valid comps.
I'd like to add that in my area, we have a huge inventory of homes for sale. Sales are down, as is the median sales price...but interestingly, 1/2 of the homes sold in the last 6 months (and there weren't many) were foreclosure sales. Half! And there's more coming.
I'm currently in Escrow on a foreclosure. The nearest comparable listing by a private seller in the area I'm buying in is about 60k (25%) more than what I am paying. I say comparable because minus a few cosmetic improvements (countertops and other nonsense) the house is in fact comparable to the other listings in every way. Foreclosures are the only thing selling around here. If you aren't going to compare a listing to what is actually selling what else would you use?
Contrary to what many believe, prices are not determined by comps. You use comps to estimate what the market price might be.
Those who refuse to include foreclosures in comps tend to be consistently wrong in their estimates.
"I (having been around for the last real estate/mortgage fiasco in the early-mid 70's) see this whole problem today as much more than a "market correction" and I feel that just letting things "take care of themselves" will result in a 5-10 year....market correction which....this country's economy cannot handle IMHO."
No, it is a market correction. If our economy can handle a housing bubble that literally made houses "worth" twice what they should have been, we can handle a return to fundamentally supported market values. So those comps are really comps. Sorry, it is what it is and you better learn to deal with it cuz it isn't going away, foreclosures or not.
According to a local lender here, appraisers are REQUIRED to include foreclosures in comps. I don't know if that's just a metro Atlanta, GA thing (we are officially in a "declining market") or if it's occurring in other areas as well.
Regardless of whether it's used to set a listing price or not... if it won't appraise for the amounts needed, then most buyers would have a seriously hard time getting a mortgage and closing on the deal.
On the other hand... we haven't seen the majority of the foreclosure prices being that dramatically different than a motivated seller's price in this area yet. So yes, they're included in calculating appraisal comps here - but they aren't (YET) driving down prices as much as they may in the future.
Why would you not include foreclosures? It's like saying the NASDAQ shouldn't include stocks that are underpriced to what their book value is. Or the DJIA shouldn't include companies that are in distress (Namely GM, Citibank, Bank of America, Home Depot, and maybe even Pfizer). The market is going to correct regardless, so let it do its thing. If you can't stomach it - sell out and be a renter until it blows over, which it inevitably will... Only after a very steep drop.
Since FORECLOSURE / REO make up 60% of all sales in a lot of area, what else would you use as comps? FORECLOSURE / REO are what's moving.
That's right, this is going to be a 5 to 10 years downturn and this is what the country need to get back to reality. We have been a spendthrift nation for over 15 years living on borrowed time and money.
the local tax assessors office told me recently that when determining a price the bank will go back 6 months for comps in the area, and they DO NOT count forclosures. This may be only in my area not sure.
i am also in the metro ATL area.
But it really depends on the bank.
so, you essentially want to trick a buyer into paying more for a home based on what? the fact that the last buyer made a mistake? what does the last buyer have to do with the next?
what's going on in the market may be unfortunate for you and the economy, but it is what it is. (and, it's good for people like me who can finally afford homes.)
Lender rating
Since September 2009
D,
Sorry but foreclosures are used and will be used. As said here, what else are you going to use? To eliminate why a home was sold is not fair to any buyer. Comps are a mixed bag of foreclosures, shot-sales, fast sales, estate sales, family transfer sales etc. Any like kind home within a reasonable area of the subject property will be a comp and then additions and subtractions will be used for condition of home, lot size, age, any upgrades, square footage etc.
I think it depends on how many foreclosure sales there are in the area. If they make up a substantial number, then YES, appraisers will use them. If there are just 1 or 2 foreclosure sales, then they most likely will not be used.
well a lady down the street was sleeping around on her husband with her next door neighbor. The ladies husband wanted out put the house up for sale for 50k less the appraisal, we have the same floor plan . Im sorry but I would not lose 50k on my house because some hoochie could not keep her hands to herself.
This thread is a reminder to me that a lot of people still don't get it (referring of course to the OP, not the responses). People are really upset to see their houses plummeting in value. Of course, they were blidly gleeful when they skyrocketed a few years ago.
Lender rating
Since January 2009
In Southern CA, home owners that have to sell are renting it out till the market improves. They expect to get 2006 prices by next year. Wishful owners. We are a long way from a bottom.
http://www.latimes.com/classified/realestate/news/la-hm-landlord2-2008aug02,0,6576792.story
"We never seriously considered doing anything except selling until a broker suggested we take the equity out of our existing home, buy another house and rent out the old house until the market turns around," Laurie said. "When the market really fell out last year, we decided to take his advice."
They're not the only ones.
"About 15% of the national landlord market is new to landlording in the past two years," said Bill Lederer, a Lake Forest, Ill.-based landlord and president and publisher of CompleteLandlord.com.
"The value of my home has dropped to $450,000," Luong explained. "So I've decided to hang on and lease it out. But I'm having a hard time finding a renter."
Luong, who now works in Aliso Viejo and spends part of her time at the Newbury Park home, closed on a Huntington Beach foreclosure for $460,000 with her fiancé in June.
For now, the clinical researcher is carrying two mortgages. "I didn't know it would be this difficult," she said.
mks...I'm sorry but hoochie sales are valid comps...just like "gotta move for a new job" sales and "too hard to climb these stairs anymore" sales and "hate my neighbor" sales etc.
When people want to move fast, for whatever reason, they will sell their house below market value....and no matter the reason, those sales are valid comps.
well, that doesnt matter to me, by the time I list my house it will not be a valid comp.
That is not entirely true 80s. If there is just one or two houses selling at a discount, while all the rest sell for much higher prices, those houses that sold below comps will most likely not be used as comps.
I have not heard of an industry movement to exclude foreclosures as comps. I don't think they should be. Comps are the truth of the market and they should not be hidden.
You cannot exclude any sales, including foreclosures. If you have only two foreclosures in a neighborhood that sold $40K below the next comps (provided there are much more and recent sales at higher price), then you can discount the lower comps because of the specific circumstances, but you cannot just ignore them.
But the appraisal industry is corrupt and are constantly presssured to make sure the house appraises for as much as possible, so do you really think they are going to include foreclosures as comps?
My brother is an SRA certified appraiser in the office next door and he has to use the values of all sold comps that he can find. I know that he uses the REO sales. Now I can't say that is true for all Appraisers, but for one that does a lot of work in my market, I can guarantee that he considers all sales. He has too.
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Foreclosure Impact on Comps
DCrich
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Has any consideration been given to some sort of industry movement to make an adjustment to the comp forumula system to compensate for sales of homes in foreclosure (what I would call a "Circumstance of Sale" adjustment) so that homes being "dumped" by idiotic lenders so that those of us who paid/still pay our mortgages (and could afford them when we took them on) don't have to pay for their mistakes.............again?
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