Foreclosure in Santa Luz

[no_such_reality]

I doubt most appraisers would see anything other than the sales price and have no idea that it’s a strawman fraud buy.

Bugs did make a good point about pre-buy. I remember Fraudera Ranch doing a lottery to buy.

For appraisal they are REOs, they should show in comps as a REO. SD Realtor can chime in here, but IMHO, I’d kick my realtor in the head and find a way to sue them if they didn’t do enough work to disclose that very similar homes are REO within a couple blocks. This isn’t an appraisal issue as much as “hey, there’s a bunch of these homes with a motivated bank owning them”

[Bugs]

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.”

[SD Realtor]

NSR you make a good point. When I do represent the buyer I do go ahead and look at the other sales in the neighborhood to see how they went, if they were foreclosures or shorts or REOs. I do not go that far back though, mostly in the past 6 months. Also it is not just the solds but you have to look at the actives, pendings, cancelleds, expireds…Also the type of home and location has bearing on things. In some cases the homes that people are buying are in new developments (from builders) or are very unique properties, (rural areas) so the search comes up empty.

Also whether or not you could sue is something that would be up to a lawyer. Unfortunately the CAR listing agreement becomes the formal contract when you list a home to sell. When you are a buyer there is a formal Buyer representation agreement in place but it certainly does not spell out the exact tasks that your Realtor will perform for you.

You definitely, to be safe, should ask your realtor to specifically do this search for you.

SD Realtor

[no_such_reality]

I’m building a list for my future broker:

actives, pendings, cancelleds, expireds… DOMS for each.
REOs and NODs in neighborhood and/or X mile radius.
sales history.
Apparent fraud in area (NOD in 6-10 months of buy)
refi and sales history for the immediate neighborhood (I’ll need to know if that nice couple that bought in 2000 have refi’d themselves into future oblivion)
ask to sales spread
“real” sales price (sales price less commissions, credits, cash to buyer, etc.)

Not sure about how they’ll get that short of calling all the brokers, any ideas or right term for it? Missing other critical things?

Not sure how likely I’m to get it and how much I should do myself.

[PerryChase]

NSR, the couple featured in the story below certainly didn’t get all the information they needed. Had they gotten all the information, they would’ve saved themselves a lot of grief.

http://voiceofsandiego.org/articles/2007/02/13/housing/939picket021207.txt

http://piggington.com/lawsuit_over_overpriced_purchase

[DaCounselor]

“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.”
__________________________

Bugs, this is a particularly interesting point in light of what is sure to be a large wave of refi attempts to avoid ARM resets. What I am hearing, in general, is that if short sale/foreclosure sales in comparables do not rise to a level so as to be considered typical, they need not be considered by an appraiser. If this is correct, “typical” comps may keep the market propped up enough to allow for refi’s before resets.

[Bugs]

Probably a better way for me to have phrased that would go like this:

In appraiser jargon, a “comparable sale” would be one that could be considered to be among the most proximate, recent, and similar properties that would also fit the definition of a Market Value sale. A “comp” would be one of the sales that an appraiser would present in their appraisal for direct comparison purposes.

REO/Short Sale transactions could fit all the other criteria, but if they didn’t also fit the definition of a MV sale then they wouldn’t normally be considered as “comps” the way an appraiser uses that term. The exception to that being if there were enough of them to establish their own trends and drive the market pricing.

By the way, this happened during the last downturn. I remember doing appraisals wherein the majority of closed sales involved foreclosures and to a lesser degree, short sales. And you better believe that the sales that weren’t REOs still reflected the same pricing trends because these sellers were all competing for a limited number of buyers.

Now just because an appraiser might not use a sale as a direct comparable doesn’t make that sale totally irrelevant to the appraisal. Appraisers are supposed to research and comment on the market trends, any apparent discounting or sales concessions commonly being offered and the marketing times that are necessary to produce these transactions at these prices.

Just as an example, if I write up an appraisal report on a house I might only present 4 or 5 closed and/or pending sales in the report to support my opinion of value. However, I will also generally have researched 20+ sales for that one assignment, not to mention the continuous and cumulative referencing of the trends that occurs as a result of doing this type of analysis on a daily basis.

By the time I get done with an appraisal my value conclusions will be based on all that information, not just the few sales I present as the most comparable.

Having said all that, I would be remiss to not acknowledge that there are some appraisers who approach an appraisal strictly in terms of how much they can justify on it without getting caught. These individuals probably would completely ignore the “low sales” altogether. However, that attitude does not represent professional appraisal practice and I don’t consider those idiots to be among my peers. Obviously I will not defend such laziness and misconduct.

[Anonymous]

Good discussion..
Three questions/ observations.

1) Assuming the original buyer had a 10% down payment, he/she could have effectively pulled out $400k from the house. Can the lenders go after that money? After all, the loans are still in his name…
2)What would be the right value for that property today? Seems to me that it should be between the original 2004 price and the current asking price?
3)Who did the repo… The original bank or the bank holding the second mortgage?

Thanks,

zino

[Bugs]

1. According to public records, a single lender did the both loans (first and second) in 2005.

2. As an appraiser I’m in no position to express an opinion of value on a property without going through the routine. A casual search of public records in this immediate neighborhood reveal several sales transactions:

05/2006, a reportedly similar sized model sold for $2,000,000+

02/2006, another similar sized model sold for $1,600,000-

05/2006, a smaller model (~4000 SqFt) sold for $1,600,000+

03/2006, a similar sized model sold for $1,300,000

As you can see, these sales are mostly in the $1,600,000+ ranges, although there is the one sale located right around the corner that sold for a lot less. At least a couple of these properties back to the edges of the mesa and have unobstructed view amenities; and additional upgrades and landscaping after purchase are very common in the area.

Bear in mind that no sales are recorded in this 3-block neighborhood since 05/2006 – although there are few listings. That doesn’t bode well.

If I recall correctly (big “if”), this site is not one that backs to the canyon, so it would normally sell for less than a similar unit with the additional privacy and view amenity. The last time I was looking at sales data in the neighborhood I think the view sites were selling for about $150k-200k extra from the developer, although that premium may not hold up in the resale market.

This seller cannot afford to wait too long for a sale. I wouldn’t anticipate them hanging onto it for even 6 months. If they don’t get some action on it soon they might be compelled to make additional cuts to the list price.

[Author]

Posts