Originally Posted by investor411
If you are buying, you must know the market. Contrary to FE's opinion that Foreclosures are not the market and should be excluded. The market is changing every day with every sale. The market is not the appraised value, because appraisals mostly only use MLS data of solds. MLS is the retail data base of properties. Appraiser use the MLS for convenience. They can/have used sales from FSBO,Builders,Sheriff's sales, and other auctions that don't list on the MLS. Sheriff's sales and Auctions are clearly part of this market, and thousands of other homes are being sold in bulk and never being accounted for in the current value market.
For a baseline though lets use appraisal.
Compare similar properties, in the same neighborhood, within the same timeframe.
Foreclosures are not on the MLS, Short sale's are pre foreclosure, and REO's which are post foreclosure. In a market that is increasing foreclosures you must consider these types in appraisal. Appraisal is base on the law of substitution. If two similar houses are available the one priced lower will sell first. The Banks are making sure that SS,and REO's are a particular PITA to complete.
Go to the Sheriff's sales near you and sell what and who is buying these properties.
When the bank buys one back, you learn what the house is not worth, as no one other than the bank was willing to bid. When someone bids over the bank you can establish a value. If it is a regular you now know wholesale, if it's a homebuyer ??????
Nationally they predict an increase in defaults and foreclosures in 2011, what do you think about your local market?
Actually, you have different markets. Foreclosures are so common now that they actually constitute a market themselves as distressed sales. DIstressed sales use to be omitted from sale appraisals, but as I pointed out above, including such data is an advantage to the lender. Several markets, new cars, used cars, car auctions and salvaged cars, having different attributes and being plentiful to the extent that market conditions can be evaluated...the old supply and demand rules, with the law of substitution of like kind assets being evaluated.
There are different purposes for a real estate appraisal. Market valeue, Quick Sale, Estate Valuations and so on. The purpose of the appraisal is the very first question an appraisal is to ask! Granted, many have gotten lazy, but they are also providing work under duress as well as banks and Realtors influence their work, to an extent even now. A bank is not required to use a certain appraiser in all instances. So the appraiser has to ask himself, how much business do I want? Now, someone might say the loan officers can't assign appraiser any more...correct, but they don't have to be on the approved list either! If the purpose of the appraisal is to establish and Estimate of Market Value, the definition of market value must be followed and like or similar sales must be used.
You don't appraise the value of your car that you are driving with the same model that is in the salvage yard! Is it a pain to fight a trend, probably so, but if you get caught up in the bank's line of thought, as a buyer or seller, you'll lose. As a buyer, with respect to your ability to borrow on a property qulaified in an open sales market and as a seller from your ability to attain a higher price. But it's also a pain to buy a car from a dealer! LOL