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Pat1
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Topic: Comps on foreclosures
Started: 9/29/10 Current Grade: B
Posts: 5 Topic Type:
I just started using investway and would like you advice. When pulling comps for a specific house in any area, how can I find out if it includes recently sold foreclosures? How much does a foreclosed house effect neighboring houses? Does a foreclosed house impact properties in a specific radius or is it just in that zip code? When I look at foreclosure stats it show them per zip code, but I would not think if the zip code covers a large area that it would impact properties in the same zip thats three or four miles away .

Thanks,
Patrick Quiroz
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JBallard
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# 1
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Posted: 10-15-2010   Current Grade: B-
I am interested in this software first of all any info on it? Do you like it? Is it worth a look? Secondly, most people i have talked with have said they will only accept comps within a 1/2 mile radius, so if you can adjust the distance i would say move it to 3/4 and 1/2 and see what happens? Good Luck!!
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Financexaminer
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# 2
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Posted: 10-20-2010   Current Grade: B
Hi, I have no idea what program you're talking about, never used one....but here is the rub;

What is overlooked is the fact a foreclosure sale is not, by the definition of market value, a comparable sale to customary sales. REO properties are sold with special warranty deeds, or limited warranties, and as such do not meet the definition of a sale to base market values upon.

Using such sales skews the value and in favor of the lender, that is one reason lenders will accept such transactions, but as an investor, you should be looking at "like sales" to establish your estimated value of any property.

In the market, you can find the difference in comparable homes between those sold at distressed values and at market, you'll likely find a general per centage difference that can be assumed when comparing a foreclosed property to an open maket sale. Appraisers should be making this distinction, but in order to lean on a more conservative side as to thier liability, many will not want to make such a distinction. That's where you need to defend your position and ask that such values are to be adjusted.

Investors should not rely on any program, IMO, to do the work for them, no accurate system will exist since comparable analysis is as much an art as it is a science. It becomes, in the end, a judgment call and a program can not have sufficiently current information to make such a call.

There are several appraisal sites and HUD sites also discuss appraisal techniques, regulations and requirements that must be met. As a professional investor, you should be able to fully understand how the appriasal process works and be able to select comparable properties in accordance with such requirements.

There is no short cut! Good luck, Bill
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investor411
Rank 4
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# 3
Default Comps on Foreclosures
Posted: 10-30-2010   Current Grade: C+
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?
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Financexaminer
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# 4
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Posted: 11-11-2010   Current Grade: A-
Yes, I can agree with that to an extent, but let's drill down deeper:

MArket Vaule has a definition that has a legal foundation and it requires several aspects of the sale to be achieved, collectively, to be considered a sale at "Market Value". One of the requirements is that good and merchantable titlle be transferred. Banks REOs are sold only with Special Warranty or Limited Warranty Deeds and do not make guarantees concerning good title afforded by a General Warranty Deed. There is value to any buyer in receiving good title as opposed to an insurable title. Just because title is insurable does not mean that it is less likely to be defended, which may require time, effort and expenses not covered by title insurance, such as liens not shown of public record that could arise from a workmen's lien that is outstanding and still within the statutory filing period.

Foreclosures are distressed sales, while good title is better assured, some liens may pass, again that are not shown of public record at the time of the search, but can be filed even an hour before any sale, such as assessments, liens filed by government entitites and attornet fees, depending on state laws.

A distressed sale does not meet the definition of Market Value arising from other issues as well. Another requirement is that the asset must be held for sale for a reasonable period of time to allow public knowledge of the offering. A foreclosue, while notice is given to meet legale requirements for the process, is not a sufficient period for all possible buyers to know about the sale, to inspect the property, to contract for the purchase, to obtain financing and ultimately close an "Open Market Sale". Foreclosures sales have a limited amount of buyers who can reasonably participate since they are cash sales.

It is to the bank's advantage to have these distressed sale introduced into the market as comprable, since the values are lower and thereby reduce lending risks. So, it depends on which side of the fence you are on, as a buyer, you may want to go along with such sales as being comprable....as a seller, I will be asking for the value afforded by my guarantee of good title and market exposure (which requires expenses in holding the property longer for such a sale!)

So, if you are talking to the appraiser and push comes to shove in him providing an Estimate of Market Value, he will have to comply with the definition of Market Value.
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Financexaminer
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# 5
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Posted: 11-11-2010   Current Grade: B
Quote:
Originally Posted by investor411 View Post
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
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