An appraiser is required to research the recent sales history on the comparable data they’re using and to analyze their market. An appraisal is not supposed to be based on the 3 most favorable or least favorable sales data in lieu of the predominant trends.
If a seller is a bank or management company this information is readily available to the appraisers and they are supposed to recognize it when they see it.
Now the answer to the second part of your question is a little less cut-n-dry. If sales in a project include short sales or forclosures they would not normally be considered comparables because the terms of those sales do not fit the definition of Market Value upon which those appraisals are based. The reason for that is because the definition of MV used for mortgage lending includes an assumption that the sales price is not affected by “undue stimulus”. Forced sales by definition include that “undue stimulus”, whether the seller is a bank or a desperate homeowner or a divorcing couple or whatever.
Having said all that, if enough properties are selling with those types of motivations it can no longer be characterized as being atypical. After a certain point, a savvy buyer recognizes that if they’re patient another foreclosure or short sale will come along shortly, so based on the principle of substitution they have no incentive to pay more. Thus, in a condo project that has a lot of NODs in the pipeline and already has several closed foreclosure sales, those prices will set the trend for all the other units that might become available whether their sellers are banks or not.
So the short answer is: “Yes, REOs can (and do) drive the market if/when there are enough of them.”
