So You Think You Know What a Foreclosure Looks Like, Huh?

We are 46th lowest for FSSR in Maine. And just do not see boatloads of any foreclosures, short sales, repossessions.

It is hit or mis in terms of being in decent condition.  Most don't look that great but some look just as good as a traditional sale so it all depends.

Like Tni said, some of each here in Wisconsin you just never know.  Thanks for the foreclosure explanations.

Hi Tom, yes I'm seeing these too.  Now if the weather would warm up so they wouldn't be so unpleasant to show.  Is it Spring yet?

Tom:  The last 2 foreclosures I've sold looked very similar to the top pics.  It's always a pleasant surprise when owners leave the homes in such pristine condition.

Every now and then I run into a "move in ready" foreclosure. But it is a rare bird indeed!

Doing VA work, I have done quite a few liquidation reports prior to homes being foreclosed.  From the stories told by homeowners of the frustrating and abusive behavior of lenders, I'm surprised all homes aren't trashed.

Sadly, I'm seeing more and more foreclosures in general.  I am often surprised with the good condition that some are left in.  More often, the banks seem to be hiring maintenance teams to keep the properties in shape. 

Here's what I find difficult.... Now that the REOs are saturating some of our area markets (saturated = perhaps 50% +/- in some of the suburban markets in my area), I cannot discount them as comparable properties like when they were making up 5%-10% of the market. In most cases, REOs have longer DOMs... agents often try to steer their buyers away from them because they're a pain to close... banks won't do any repairs required by buyers' lenders, etc... For these reasons they are often sold at a lower price than similar homes in the area.

I've been told by our state board that we are not to enter a positive adjustment simply because a property is a distressed sale (bank owned, short sale, relo, estate, etc).  So when these properties are also in top condition, I have no where to make adjustments to show that there is a reason for lower ticket prices on these properties. 

I understand that REOs will likely drive down the values in an area market... but when I can easily see a 10%-15% difference in value between distressed and non-distressed sales, it seems an adjustment somewhere is in order.

Any suggestions?

Years ago I had a REO client that almost always fixed up the houses real nice before they sold them, although, usually when I saw them they hadn't been fixed up yet. Giving them an accurate "as is" & "as repaired" was very important to them.  Then it seemed that things went to where the banks usually sold them 'as is', no repairs.  Lately I'm seeing some more that have been cleaned up & in some cases even painted with new carpet.

The distress issue that in my mind may create some kind of an adj in some markets, might not have to be a separate adj stated as a distress adj.  The cloud of distress would affect all elements of value in a given property. So with that in mind, some of the other adjustments might have to be changed a bit to reflect the extra consideration of the market of the distress issue on that element. The end result at the bottom of the grid would be the same as if you had a separate distress adj, but it would not show as such.  I don't think it would be at all deceptive, it would be just adj all of what the market participants were considering when making their offers. If you did not include the considerations the market was making, your report could be misleading. If you did not make all market adjustments, you would have to state that a comp was high or low due to not being totally adjusted to market as per client request.

First, I attempt to not include REO sales if possible.  I believe they constitute a separate market within a market area in that buyers are not typical buyers since the properties must meet lending criteria and often need improvements after purchase, thereby limiting the potential buying market to investors with ready cash to purchase and repair the properties.

Questioning a REO adjustment, I completed a report yesterday where I had 5 comps with 2 being REOs.  Adjusted values were $110,100 - $128,400 - $134,500 and $80,700 - $96,800.  The latter two were the REOs.  This is very rural appraising where comps are nearly 30 miles away and adjusted outside standard ranges due to acreage variations.  But it is quite evident that an adjustment is indicated by the market.  Fortunately in this case, my adjustment was to drop the 2 REOs from consideration with 3 adequate comps remaining. 

Unfortunately, the lending market does not want appraisals done correctly by appraisal standards since it would shake their foundation.  But I'll outline that in a separate Blog.

REOs are generally at least a 10% discount and up to 70%, depending on the area.  They do impose a drag on market values but REO buyers are most often investors with the cash reserves to repair to properties after purchase which often is also via cash. 

The greed of the lenders is the basis of the entire problem.  If loans are government backed, the lender receives full reimbursement even when the home sells for pennies on the dollar.  The taxpayers (us) pay this bill, the homeowner has lost his home and credit rating, and the community suffers from lower housing values which result.  How many struggling homeowners with good intentions would still be in their homes if the banks would have reconstructed or refinanced them at the lower rates presently available?  And repeatedly I'm told that help is available only after they are 3 months past due, which has destroyed their credit and eliminated refinancing options.  The banks profit from foreclosures as do the attorney and servicing companies which handle the process.