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(English) Distressed Property: The Impact on House Values

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13 comentarios
  1. Chip Wagner, SRA, SCRP
    Chip Wagner, SRA, SCRP Dice:

    Again, the message today is 1) Real Estate is local, and 2) Real Estate Professionals (brokers, appraisers, lenders) need to work through this together.

    Too many times I read articles and hear people talk and give interesting statistics that are “regional” or even “national” and we all know that some areas and sub-markets are doing better, and some are doing worse.

    Secondly, I believe that real estate brokers and agents have the local knowledge and can profile a buyer and competing areas, and this is often an appraiser’s weakness. Appraisers have been trained to choose most similar comps in close proximity, often times just considering data that is most recent and closest to the property. Regulations have contributed to this as Fannie Mae appraisal guidelines for years, said comparable had to be within one mile from the subject property.

    But as agents know, a buyer doesn’t come into the town and say I want to live in the “XYZ Subdivision” – they say to their agent please show me properties in this price range, within this distance to schools or employment areas, and homes that are this size with “X” Bedrooms. Also, buyers preferences for newer or older homes, as well as other locational influences such as larger lots, etc. Some appraisers tend to look for comps in the XYZ Subdivision, and not searching for how buyers compare and select properties.

    In relocation appraisals, we call this identifying the “Market Segment” which is the area in which potential buyers for the subject property may look for substitute properties. It is definitely a strength of the Realtor and a weakness for the appraiser. Realtors, help the appraisers out.

    In my example in the blog above where there were only 5 sales in the past year, 4 were distressed, I went out of the condo complex to a competing development less than 1/2 mile away for a recent arms-length sale for a comparable sale. The property was similar in age, style, functional utility, condition and price. It was in the same Market Segment, which is the same area a buyer for the subject would also consider this competing condo development.

    Responder
  2. Geo
    Geo Dice:

    “In my example in the blog above where there were only 5 sales in the past year, 4 were distressed, I went out of the condo complex to a competing development less than 1/2 mile away for a recent arms-length sale for a comparable sale. The property was similar in age, style, functional utility, condition and price. It was in the same Market Segment, which is the same area a buyer for the subject would also consider this competing condo development.”

    Chip, you stated that “There comes a point where distressed market competition becomes the marketplace. ” So in the condo complex that you had the assignment at, you said there were 5 sales of which 4 were distressed.
    How many listings were distressed?
    Well 4 of 5, that’s 80% is it not? 80% certainly IS the marketplace within that specific development. If that is what is occurring, at the very moment, then that is the market condition in that complex. By going outside, you are have chosen comps that do not necessarily reflect the subjects immediate on-site market- the complex of 246 units (which is a significant amount of units) Sure, the other complexes may compete with the subject, but that is somewhat a subjective assumption to make. Perhaps ‘Market Segment’ comes into play, but it certainly takes a fair amount of presumption. How about this; if the 3 of 5 sales were arm’s length, would you have gone outside of the complex? I’m going to guess no. But because the lender or client or whoever might bristle or raise a flag, you utilized comps from another complex. If the subjects complex is mostly distressed sales, then that is the current state of the on-site, micro-market of that complex. By using outside data, you are manipulating the outcome of the opinion of value. Sure, you can present an argument for- as I can present an argument against. My point is, distressed sales are vital to an appraisal, to indicate what is happening and the current market conditions in any specific locale. I would have used all 5 sales from within. I then would have utilized 3 or 4 sales from competing complexes and presented the deltas of the mean and median sold prices of each complex. My final opinion of value would be drawn from within the subjects complex, but also I would be able to show the the spread between the competing properties.
    After adjusting for ‘type of sale’ I’m sure that the spread would be less than 35%. I cannot imagine that prices in any area of Chicago are rising and inventory is probably increasing, right? The distressed sales are a part of the market, I know lenders would like to pretend they don’t really exist, but the fact is clear, that they do. They are are also as you stated, plentiful as substitutes and offer direct competition for non-distressed properties.

    Responder
  3. Brett Reichel
    Brett Reichel Dice:

    My biggest issue with appraisals currently is that lender pressure continues, despite “new” regulations. What I mean is the pressure that Fannie Mae and Freddie Mac put on the appraiser to use changes in median prices to justify adjustments for time. I see appraisers using this justification consistently, despite the fact that this has never been acceptable concrete evidence of change in value. Would you comment on that, please?

    Responder

Trackbacks y pingbacks

  1. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Instituteissued a paper on the subject. In the paper, the […]

  2. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paper on the subject. In the paper,  the […]

  3. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paper on the subject. In the paper, the […]

  4. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Instituteissued a paper on the subject. In the paper, […]

  5. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paper on the subject. In the paper,  the […]

  6. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Instituteissued a paper on the subject. In the paper, the […]

  7. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paperon the subject. In the paper,  the […]

  8. […] on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paper on the subject. In the paper,  the […]

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