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We all can do their job the way it is described in the article...you go to the appraisers website and look up all recent closed transactions and based on that you have your appraisel...no more loooking at really comparable homes or lots...
What they are doing is compairing a bankowned trashed home with a nice home with upgrades that is for sale....isn't that crazy?
I understand that you don't have the same value as before but to compaire in one street a complete trashed home and a similar sqft. home build in the same year but one has a nicer view or lot...and nice upgrades....
Why do people even pay for a appraisel, my High school kids can do it from behind his computer!
Sorry to say, that appraisers and Realtors are more experienced than high school kids to figure what the market is calling for in a homes value. You are correct in your assumption that appraisers and Real Estate professionals take foreclosures into consideration when determining a homes value. However, if the neighborhood average priced home is $200,000 and there was one foreclosed property, the value is not hurt but can be effected by a small margin. But if there are more foreclosed or distressed properties sold in a neighborhood then the market in that neighborhood is effected. The formulas are different depending on the location, style, condition, etc. You cannot compare a Cape to a Colonial or two homes that are 5 miles apart(unless there are no other comps), and comparables are not properties sold more than 90 days prior to todays date. This is where Zillow, Trulia and many other generic web sites make devalue properties, because they compare a whole zip code, and do not focus on a neighborhood.
Some Realtors base their comps by adding in the foreclosures and short sales when they are representing a buyer to prove that the house is valued less than what is being asked. That is not the correct way, because it does skew the numbers on the property being sold. Notice I stated some Realtors base their comps and not Real Estate Professionals, that's because there is a difference. Real Estate Professionals are Realtors that have continued to learn their markets, learn the differences in markets of yesterday compared to markets of today, and Real Estate Professionals are FULL TIME REALTORS. Appraisers and Real Estate Professionals know what comps to use and how to use the comps correctly. Can your high schooler do that?
We all can do their job the way it is described in the article...you go to the appraisers website and look up all recent closed transactions and based on that you have your appraisel...no more loooking at really comparable homes or lots...
There is much more to appraising than "just looking up recent closed sales".
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What they are doing is compairing a bankowned trashed home with a nice home with upgrades that is for sale....isn't that crazy?
No, that is NOT what we do. However, if foreclosures are the trend in a certain neighborhood, then THAT is the market. THEN we adjust for condition.
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I understand that you don't have the same value as before but to compaire in one street a complete trashed home and a similar sqft. home build in the same year but one has a nicer view or lot...and nice upgrades....
See above.
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Why do people even pay for a appraisel, my High school kids can do it from behind his computer!
No they can't. In order to appraise a college degree and several years of training are required.
If a REO is in really bad shape, like it has no appliances, cabinets torn out, partialy done remodeling, it should be worth significantly less, not just less the cost to put in cabinets and appliances. That's because not all buyers have cash to put into the house. Also, not all buyers can go a couple months without moving in or a couple months without a kitchen. I don't know how an appraiser would factor in that. Is there a typical discount for that type of REO?
If a REO is in really bad shape, like it has no appliances, cabinets torn out, partialy done remodeling, it should be worth significantly less, not just less the cost to put in cabinets and appliances. That's because not all buyers have cash to put into the house. Also, not all buyers can go a couple months without moving in or a couple months without a kitchen. I don't know how an appraiser would factor in that. Is there a typical discount for that type of REO?
Any property can be adjusted for condition. If you have two identical houses next door to each other, both REOs, and one has been maintained well and the other is missing items and has a lot of damage, you adjust for that condition based on the market response.
If a REO is in really bad shape, like it has no appliances, cabinets torn out, partialy done remodeling, it should be worth significantly less, not just less the cost to put in cabinets and appliances. That's because not all buyers have cash to put into the house. Also, not all buyers can go a couple months without moving in or a couple months without a kitchen. I don't know how an appraiser would factor in that. Is there a typical discount for that type of REO?
Let me see if I can clarify this a bit more. To do that I have to begin with some definitions, which I will define as I go along.
First is Depreciation. Depreciation is loss in value for any reason. There are three types of depreciation, Functional, Physical, and Economic. When you have a poor floor plan, it is a functional loss in value. When you have the wearing out of short lived components you have Physical Depreciation, and when the area around the house is negatively impacted (such as an extraordinary number of foreclosures being sold) then it is Economic Depreciation.
When we develop the amount of depreciation, frequently we can't separate the three types. Obviously a bad floor plan is not only Functional, it is Physical. Sometimes it is curable, sometimes it isn't. This brings us to the next definition
Curable/Incurable. These terms are economic terms. If the contributory value of a repair does not exceed the cost of the repair, it is considered incurable.
Economic Depreciation is almost always incurable.
The first thing you look at is the cost of construction. Then you find a sale of a similar property.....a "comparable." This brings one more definition.
Comparable. A sale that is recent, proximate, and similar. The more recent, proximate, or similar the sale is, the more reliable the comparable.
You calculate the cost of constructing the GLA. you calculate the sale price of the GLA (the sale price minus the value of the land, garage, and other non-GLA improvements) of the comparable.
Divide the RCN (Replacement Cost New) into the Comparables Sale Price of the GLA, and you have the total amount of depreciation from all causes. It should be remembered that RCN cures Functional Obsolescence.
So while there is no "standard discount" for an REO, it can and should be calculated and adjusted for.
" Every time a home in your neighborhood, or especially on your street, sells at a fire-sale price, your home's value is likely to drop, too. "
I know of motivated sellers who had to undercut close by short sales to get sold.
In my area, relocation- company owend homes are sometimes selling at foreclosed prices and these properties are in decent shape.
Every sale in the area of a comparable property impacts the value of nearby homes. Real estate agents and appraisers are quite capable of taking condition into consideration.
Automated Valuation Models generally do not do so.
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Appraisals & Broker Priced Opinion
