Foreclosures and the Market Value

There are a few foreclosures on my street does that effect my market value?

YES!

Fannie Mae recently released a statement in regards to using foreclosure sales in an appraisal stating:

"You will not use REO sales for your comps unless they are the market. If REO listings and sales are the market then you need to explain that fact in your appraisal"

Meaning there are accepting the foreclosure value as the actual value now (if its the market).

What does this mean to you or your business or your home value?

It is a little scary to think about how much homeowners have really lost over the past few years due to defaults in there area. Recent studies indicate the loss to banks is approaching the 1 trillion dollar mark, and some market areas have seen a decrease in value of over 40%.

There have been cases where there are no other sales but REO and Short sales within a subdivision and general market area to choose from. This is especially true in newer developments and so called "flipper friendly" markets.

Appraised values will be affected by this move because the foreclosure/REO value is usually about 20% - 30% less then the typical market value.

Its not all bad news:

Another factor which fannie noted is REO sales are typically sold "as is" meaning that bank will not make any type of repairs or warranties in regards to the condition of the home.

We do alot of REO appraisals for banks and typically they are sold in below substandard condition for the area. This makes it very hard to consider using them in an appraisal because the amount of adjustment's necessary to justify a proper market value would be impractical. This makes using foreclosures and REO sales and absoulute last resort.


In Conclusion:
I believe the storm isn't over yet, however by 2009 things will start to look brighter. As speaker Jim Rohn said "there has never been a double night, as scary, long and dreadful one night can be the sun always comes up in the morning".

As bad as the market is now it will come around and get back to normal everyone just has to stay focused and keep working.