If you could get the same deal buying a home from a seller instead of a short sale or bank foreclosure would you?
So what’s the big attraction to short sales and foreclosures? Can you really get a better deal buying one? That seems to be the number one question people ask me. They say “I only want to look at short sales and foreclosures”. I hear this from buyers almost every time I consult with them the first time.
I wanted to know that my buyers were going to get the same deal buying a home from a regular seller, which seems to be everyone’s biggest fear right now. By only looking at distressed sales we would take half the homes on the market and say we just don’t want to look at them.
I called a local appraiser here in Tampa to get the facts.
What happens in the appraisal process?
We look for the most comparable sales regardless of short sales and foreclosures. Some homes do sell at market value, and some don’t. Some foreclosures are trashed and they can’t be comparable to a regular home sale. Jeff Alpert, of Action Appraisal Services, said “Homes in South Tampa are in desirable neighborhoods are selling for same amount most of the time. However, everything is on a case by case basis. The reality is the home must appraise, and appraisers are using short sales and foreclosures as comps.”
An appraisers’ job is to find the best comps available for the subject property. If an average house sells for 200K, and a similar foreclosure sold for 150K, they probably won’t use it because it’s not the norm and something strange may have been going on with the sale. Often there are missing appliances, mold, or the home needs a total rehab.
Jeff said, “In Riverview, there are so many foreclosures that everything is selling way below market value. Their job is so hard because the banks are saying that they are either overvaluing or undervaluing the homes. The appraiser finds the happy medium. It doesn’t matter if it’s a foreclosure or short sale.”
If a short sale appraises less than market value you won’t get the deal you thought you would.
Sometimes the BPO (Broker Price Opinion) comes in higher and the bank says no, we’re not doing the deal and everything falls apart. Now you just wasted 3-6 months, so you need to make a realistic offer to begin with. Low ball offers just aren’t being accepted.
When asked, this is what Lain Rogue had to say about short sales and standard sales:
“I think it’s in the psychology of it– people associate short sale with good deal. They automatically conclude that the price of the house is less than its actual value since the bank has agreed to sell for less than what the owner actually owes (thus instantly meaning good deal in one’s mind)…for a buyer to know if a standard sale is a good deal– it requires “extra steps” to get the comps and review..although if they have you, it should take out those steps out.”
It seems that even in a short sale, the value of the house should still be assessed by reviewing the comps.
What about those instances where someone paid too much for a house? Just because the bank will let it go for less than what they owe doesn’t necessary mean that the price is less than market value.
I fear I may have gotten a bit convoluted in this, but I think people are just assuming that short sale means less than market value. A wise buyer should still do their due diligence and do the comps- short sale or not!!! But as we have come to learn…fair market value is only what one is willing to pay, right?