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The Market is Never Wrong - Distressed Property Sales as Comparables

By
Real Estate Agent with Destination Properties

I work in a beautiful resort area where many people purchased homes, condos and land (many with cash) over the last few years. 

Ogden Valley Real Estate 

Many buyers got in before or while prices shot up in 2005 and 2006.  Since 2006, inventory levels have increased and sales prices have slowly fallen.  List prices on properties where sellers don't need to sell have been slow to come down.  Sellers have every right to list a property at whatever price they feel most comfortable with, as long as there is an agent willing to list it for them.  I don't have an issue with that.  Personally, I would rather lose a significantly over-priced listing than continue to market it, but another discussion.

I take issue with agents who continue to look at the market through rose colored glasses, thinking back to the glory days of a few years ago.  Get over it, that was then.  The real estate market is only obeying the law of supply and demand, no different than the stock and commodities markets.  The market is never wrong!

My question:  If there have been no "conventional" sales over the past six months, and sales have been limited to Short Sale, REO or Foreclosure properties, is there any reason distressed property sales should NOT become the new comps used to determine valuations in the market?  I am talking about an area where "distressed"  listings are priced 15-30% below list prices for regular properties.  Regular listings continue to sit on the market, so the only recent movement has been on the bottom end.  I recently had a discussion with other agents who suggested that a sale of an REO property should not impact appraisals.  This makes no sense to me, considering distressed properties in this particular area compare well with the condition of regular listings.  The only downside may be the stigma attaached to distressed properties.  Also, worth noting - although a subject REO property was priced significantly below other properites, it still took 90-120 days to go under contract, and this was only after a couple list price reductions.

Thanks for reading.  Opinions welcome!

Comments (1)

Anonymous
Melissa Fox
The stigma is not the only downside to an REO. Without an owner vouching that there was no slab leak last year or a recent kitchen fire, the new buyer has no recourse for defects or damage that the seller would otherwise have known about.  
Apr 24, 2008 10:29 AM
#1