If you keep up with the news you know that foreclosures dominate the headlines. It is an unfortunate thing but something appraisers must consider. People ask me all the time about why I must use foreclosure sales in the appraisals I do. What I tell them is that in many real estate markets foreclosures are driving property values. And as you might guess, it is not in a positive direction.
Several years ago an appraiser might run across a foreclosure sale and, after analyzing the market, decide to drop it because it was not relevant and did not reflect overall market activity. However in today’s market, due to the number of foreclosure sales and listings, decide that they do reflect what is occurring. Appraisers are required to use recent sales, and more times than not, these are foreclosures, which are typically lower. In addition to closed sales we look at homes that are offered for sale. These are used because they would compete with the property being appraised if it were for sale. As with closed sales, many of the homes that are for sale are foreclosures that are listing lower than non-foreclosure properties. These days foreclosure properties are not trashed out like they use to be. They are high quality homes that have been well taken care of but were foreclosed on due to the owners losing their job or some other unfortunate circumstance.
So the down and dirty on foreclosure is that they must be used in our appraisals if they reflect what is happening in the market and they are having a direct impact on property value trends. If you have any other questions about foreclosure or anything else, please give me a call at 205-243-9304.