Appraising in a Crazy Market - Part 2 of 2

by Georgi
To purchase a short sale the buyer must be patient because the banks take time to make their decisions. Short sales are also typically sold in “as is” condition. Many short sales have utilities turned on; therefore a home inspection is possible. Also, you are buying them before the foreclosure when most upset homeowners are doing the vast majority of the damage. There are many "mad homeowners" created by foreclosure who want to leave the bank the home as damaged as possible. You must have patience to purchase a short sale and understand that this is the “price” you pay to get a home below market value.

To purchase a bank owned REO you must also wait while the bank makes a decision and you cannot have contingencies (in other words: "I can’t buy this home until my home sells"). Typically, many REO's have all the utilities turned off making it more challenging to complete a home inspection, something I highly recommend on every purchase. Good Realtors will have the bank turn on all utilities for an inspection.

I have seen many bank owned homes in the past few months with considerable water damage, missing appliances, missing ceiling fans, and missing kitchen cabinets. On one home the rear watering system flooded the home when the water was turned on by the bank after closing but before the buyers moved in. Another  REO had $18,000 worth of water damage and drywall repairs. Look for mold in the closets that back to bathrooms and for signs of water damage under the sinks in the kitchen and baths. Remember water damage in a cabinet could mean that the drywall behind the cabinet could have mold.

Make sure you understand these are “AS IS” and to take into consideration the “cost to repair”. I have seen purchases where the REO’s were not cheaper than the typical transactions in the neighborhood after the extensive required repairs. Buyers should beware that many things found in an inspection can not be seen with an untrained eye, especially without utilities.

I try to use comparables of “normal” sales with the purchase of a “normal” sale, as the risks that come with REO’s -- and the time that comes with a short sale -- are factors that do affect the price a typical buyer is willing to pay.

This is a great time to find a good deal, just realize that you need to be patient and hire professionals for their opinions in order to reap the savings. Time is money, and if you are willing to take the time with a short sale you can find a great deal.

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

Comments

[Ellen]

How does extensive water damage affect your appraisal?

[SB]

Georgi, does that mean my house, as a "typical sale," is not valued the same as a REO? In other words, is my house value is affected by other typical sales and not distressed properties? If I sell my house for $25,000 more than the short-sale down the street would you, as my appraiser, ignore the short sale?

[Georgi Stratton]

First I can tell you how I do it, but appraisers have differing opinions about which comparables to use in a report. I would not use short sales or REO's in your apprasial, if there were typical sales which are similar in your neighborhood. Those typical sales are still affected by the volume of short sales and REO's but not to the same degree. I would ignore a short sale on the same street. Most sales these days have some type of distress, as sellers that can wait are waiting for the market to calm down and the excess of listing to go down. Georgi

[Georgi]

I would note the water damage in the appraisal and take photos. Most lenders typically requires the water damage to be repaired before closing the loan. If the ask my to appraise the home "as is" I would require a professinal to give me a quote and deduct that amount from the comparables. Water damage has significant liability as it can cause mold and it is almost impossible to determine the extent of the damage until you begin opening up the water damaged area.