Do foreclosures affect my asking price?
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I hаνе heard conflicting opinions οn thіѕ. I аm looking аt selling mу house аnd whеn I bеgіn tο pull comps οf thе houses sold іn thе area, hοw аrе foreclosures going tο affect thаt price? I heard frοm a realestate agent thаt foreclosures аrе nοt suppose tο affect active listings, whіlе mу bank (whеn I wаѕ going tο refinance) used foreclosure listings whеn thеу pulled comps, whісh doesn’t seem exactly fаіr tο mе. Anу info wουld bе grеаt. Thanks.
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Your real estate agent is wrong. Foreclosures of similar properties in your area definitely affect your valuation and selling price. Stop to think about it. Why would a buyer pay YOUR asking price when he can go down the road and purchase a foreclosure for perhaps $20,000 less ?
Foreclosures which sell below the former (pre-foreclosure era) pricing definitely bring down the values of other properties in the area.
If your bank was considering a foreclosure on your home then the foreclosure prices are the correct ones to use. If not then they should have used a more accurate BPO. Broker Price Opinion or Appraisal and you probably could have requested that they get more accurate comps!
Comps = SALES
Current listings should not be used for comps if you want accurate information.
If a home has been sold, whether by a private owner or a business (i.e. bank, investment company), it’s potentially a comparable property
I think I understand the confusion.
An appraiser would prefer not to use foreclosures as comps because they may not be able to properly adjust for condition problems or special financing offered by the bank/owner. They will use them if there are no better comps to use.
All sales in your area affect your market value. When the appraiser uses non-foreclosure sales in your area as comps- those sales prices have also been affected by the foreclosures in your area.
So what you heard from the real estate agent was not right, just a misunderstanding of common appraisal practice.
ANYTIME you ask ANYBODY a question; you need to understand what the other persons agenda for giving the answer is.
A real estate agent is a commision paid SALESPERSON so the higher the price they can get you to list your house for then the bigger paycheck THEY get if it sells.
Banks are putting their money on the line to give you a morgage on the house and do NOT want to get more of THIER money out there then the house is realy worth.
So YES, it is very reasonable for banks to include ALL houses on the market AND look VERY closely at foreclosures in that area.
Realtors on the other hand try to AVOID looking at foreclosure prices and tell you that those are special and not realy a good indication of market value.
What is the REAL answer, depends on your viewpoint, in the short term foreclosures WILL affect sales prices and will drag down the local market but in the longer term foreclosures are a short term problem that SHOULD be cleared up and market values will go back to a normal level in time BUT there are other factors that will affect how quickly and IF the last “market valuation” will EVER come back. How much did your area go up in this last bubble/mania? Is the population and job growth demographics headed up or down? Showbird area or rustbelt? Coast or inland? High tax state or low? Everything in real estate is location, location, location so what is your location? Together ALL these
factors play a part in decided if and when the market will rebound in your location. NEVER, EVER take an answer to a question without looking at the motivation behind the person giving the answer.
No, it should not be included. And although what Jerrold says is logical (as I do agree you should question peoples’ motives), he is wrong. Agents do not provide the value by which the banks uses, rather, the appraiser does. And guess who the appraiser works for? THE BANK….and the definition of market value as stated in the glossary of the Uniform Standards of Professional Appraisal Practice is “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they consider their best interests;
3. a reasonable time is allowed for exposure in the open market;
4. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”