I know it is frustrating when foreclosures are used to appraise a property, which I discussed in a BLOG before. See Below Link. However, if appraisers are using SHORT Sales, CRY FOWL.
Why Appraisers Use Foreclosures
Here is how a Short Sale is Defined: A property sale negotiated with a mortgage company in which a lender takes less than the total amount due.
This is not a "REAL" sale, nor does it have anything to do with a MARKET Sale. The sales price depends solely on what the bank is willing to negotiate and how much of a loss they are willing to take.
We even have lenders noting on the appraisal requests...DO NOT USE short sales as they are not true sales and this is 100% correct. They are not market driven sales and that is the foundation for determining values.
Now foreclosures are a different story, If they dominate the market being appraised, they do become the competition for the subject. Read my post below for more information.
Why Appraisers Use Foreclosures
So if you find that an appraiser has used a short sale in the appraisal process. Advise the lender that the appraisal is flawed and another one should be completed.....PERIOD! As a Realtor you know which sales were Short Sales, so you can help the borrowers in this situation.
The lenders are supposed to have an appeal process in place if someone does not agree with the value.
One final note: Many Realtors as well as Appraisers do believe that if someone is willing to pay a certain price for a property, that DEFINES Market Value. In an ideal world that is absolutely TRUE, but there are many other factors that come into play, like is the buyer adequately informed and knowledgeable of the market....that is where the Realtors come in....So if homes have not sold in a particular neighborhood over $200,000 and now the buyer is willing to pay $210,000 for a very similar property, you have to ask yourself, does that buyer know that all the other homes sold for under $200,000 and if they do, what is the reason for them now paying $10,000 over past market sales? Put yourself in the buyers shoes...what is the justification here?
Sure at some point that ceiling has to be broken otherwise values will never rise....and if we see a steady increase in values in the past 3-6 months for example or we have a darn good reason why we feel values have reached that higher sales price, then we can make upward adjustments accordingly to those sales, But we better have sound analysis and market data to support and back up our decision to indicate that this home is NOW worth $210,000. We look at things like absorbtion rates, supply, days on market, etc. to evaluate just where this market is headed or where it is currently.
As I have always said in my past Blogs, we are here to protect the banks interests in lending money.... now more than ever, we are not here to KILL deals, we have no vested interest in doing so! We just want to provide the lender with the most accurate valuation of the properties in question.....
Have a Great Memorial Day Everyone....Remember our VETS....
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