by Georgi
In 15 years of appraising this is the most complicated time to try to determine a homes estimated market value. In the typical neighborhood we see several types of transactions:
- between a typical buyer and typical seller with out duress (also called a "normal sale")
- REO’S (bank owned foreclosures)
- short sales (homes being sold for less than owed by negotiating with the bank)
There is a considerable difference in price between the "arms length" transactions versus REO’s and short sales (arms length transactions are conducted as if the parties were unrelated and carried out under free market conditions in which each party acts in its own self-interest). If we are appraising a typical transaction with a "normal or typical sale" we try to find “normal sales” to use as comparables. We always try to find sales which are similar to our subject property in every way.
It gets tough when you are in a neighborhood where there are little or no typical transactions. Some neighborhoods have few sales that aren’t short sales or REO’s. This is where it gets really tough! As an appraiser we must make a decision whether it is more reasonable to go to another neighborhood to find a typical sale OR stay in the neighborhood and use the short sales and REO’s. Due to location, age and quality of construction this must be decided on a case by case basis.
I try to use typical sales to compare against typical sales, however underwriters (the people that read appraisals and make loan decisions) are under new guidelines and incredible pressure to have an appraisal with comparables less than 90 days old and located within 1 mile. The reason: they need to sell this loan on the secondary market and need the appraisal to make sense. The hardest part about appraising now is that lenders want more similar comparables and we are in a slower market with less comparables than ever to supply them. We must give them enough recent sales and explanations as to "why we did what we did" to give them a comfort zone with this appraisal and this home.
Tomorrow I'll write a bit more about REO's and short sales.
If you would like to know the current value of your home please call HomeStar Appraisers at 480-777-8266 or fax your request to 480-777-8499. You can also email me at georgi@homestaraz.com
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