What's My House Worth When There's a Foreclosure Two Houses Over?

There's an irony in this title that's getting to be a sign of the times. The past couple of days have found me laboring to provide potential sellers with a market value for their homes. This has been in anticipation of the spring market, and trying to get a jump. Aside from the usual questions as relates to property amenities, bedrooms, baths, updates, it appears that the most difficult adjustment to the evaluation is for the neighbor's house that was taken over by the bank and resold at a loss two months ago.

Within the past year, banks have not only requested their appraisers tighten the radius that they would use for comparables, but have also started to request that the appraisers find sales no older than 90 days. This is supposedly in an effort to be pro-active with the value and the tightening up of credit.

So here's the dilemma, assuming I have a typical split level to be analyzed, in an area inundated with colonials, and one of the three viable (or so I thought) homes recently sold for $55,000 less than it should have. The next closest properties are in a different district of town, and an entirely different zip code. I remember back in the appraisal classes that I took that there were instances when it was permissible to use a value rational assuming the home prices had a reasonably similar ratio. But even this gets skewed when there are defaulted properties in the mix. This is truly a situation where the Realtor needs his best polish to try and get the homeowner to understand the problem.

It would also stand to reason that the problem must be compounded many times over when there's a matter of refinancing involved. How does the homeowner react when they try to refinance their mortgage and suddenly find out that not only has all of their equity disappeared, but that the house is worth considerably less than when they bought it. This must be the case in California, Florida and Nevada where the rates of foreclosure are the highest in the country. Even in our state of Connecticut, which is ranked eighth in the nation for foreclosures, we have homeowners just throwing up their hands and walking away.

There is already enough of a problem in our business with lenders redefining their requirements more frequently than they have probably done in the past 10 years. Add to this the severe fluctuation in interest rates almost daily, making it a virtual roll of the dice to try and lock in a good rate when the borrower has good credit,    and the fun is just beginning.

We all understand the need to serve, and be as knowledgeable as possible to keep our clients educated and current, but even for those who are active and striving to keep abreast, it's not the easiest of times. The rules change by the hour, which frustrates the sellers and causes the buyers to hold back so that they can make their decision when the dust settles.