When appraising a home, the appraiser uses all the information available to them in order to provide the best possible opinion on the value of the property. This includes using comparable properties that will frame what other similar properties are valued at, this can include distressed sales. Distressed sales, in other words, are foreclosures and short sales.
That means that distressed sale values in a given market could possibly affect the appraised value of a property, depending on its proximity and how prevalent short sales are in the neighborhood. Before we get too far, let’s talk about the two major types of distressed property, foreclosures and short sales:
Foreclosure is a term used for a situation where the borrower (someone who pays a mortgage on a property) fails to make principal or interest payments on their mortgage. If adjustments for repayment of the loan are not made, the situation leads to the lender seizing the property.
Short Sales are, in laymen’s terms, the process of selling a house for less than what is owed on the property. This happens when the lender and borrower decide to sell the property at a loss to reduce the risk of the borrower going into foreclosure on their loan.
Its the appraisers job to analyze distressed sales in a given neighborhood to determine the effect on the neighborhood. If the neighborhood has a significant level of distressed sale activity, they may have to consider foreclosures or short sale comparables in the neighborhood to help them draw a more accurate conclusion about the value of the property. What could this do to the property values of homes that are still on the market? Simply put, values could go down. This is because the short sale values are included in the overall market value range.
foreclosures or short sale values within the surrounding area to help them draw a more accurate conclusion about the value of the property. What could this do to the property values of homes that are still on the market? Simply put, values could go down. This is because the short sale values are included in the overall market value range.
However, this doesn’t mean that the distressed property value is weighted the same as other comparable properties. Comparables that were sold at a market price will often be weighted to hold the majority of the value when determining a property’s value.
For more information on appraisals, feel free to visit us at www.MarylandAppraisal.com.
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