PrintPrintWith the recent epidemic of foreclosure and short sales, many homeowners are wondering how their neighbors’ distressed sales will affect their own home values. Appraisers say the answer isn’t black-and-white. It depends on how many distressed sales have taken place in a particular neighborhood lately.
By Ashley Fletcher Frampton
aframpton@scbiznews.com
Originally published Sept. 14, 2009
With the recent epidemic of foreclosure and short sales, many homeowners are wondering how their neighbors’ distressed sales will affect their own home values.
Appraisers say the answer isn’t black-and-white. It depends on how many distressed sales have taken place in a particular neighborhood lately.
“It depends on how prevalent it is,” said Joe Kavanagh, owner of Kavanagh Appraisal Co. in North Charleston.
Kavanagh gave the example of a North Charleston neighborhood where, for a while, most of the sales were short sales. Those sales set the going price for homes in that neighborhood.
“That is the market,” Kavanagh said.
But in neighborhoods where forced sales of distressed properties represent a small proportion of recent sales, appraisers say they probably won’t use those homes as comparables.
“Banks dumping a property, that doesn’t define market value,” said Karl Finklestein, principal of Atlantic Appraisals in Charleston. “But if you’re in a market where there’s 25 short sales out of 26, there might need to be some consideration.”
Finklestein said it’s a market-by-market decision.
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No matter what market conditions are, Kavanagh said it’s an appraiser’s job to determine which homes in a neighborhood are reasonable comparables to use in figuring a value. Not every home in a subdivision has the same price per square foot.
Appraisers need to be familiar with a market to know which homes are comparable, Finklestein said.
An out-of-town appraiser who does not study the local market could come up with an inaccurate value by grabbing three recent sales from the multiple listing service and not recognizing them as distressed sales, he said.
In the fast-and-loose days of the real estate market, appraisers said some lenders and mortgage brokers favored automated valuation models, also known as desktop appraisals, because values could be determined largely by taking recent sales numbers from the multiple listing service.
Those automated appraisals might have involved a drive-by, or a cursory examination of the home’s exterior, Finklestein said. Because home values were rising so rapidly, a precise value wasn’t as crucial.
But in today’s market, lenders are much more careful about underwriting standards, and they want a more detailed appraisal, he said. Features on the inside and outside should figure into the value.
“They want someone to go out and touch and feel it,” Finklestein said.
Reach Ashley Fletcher Frampton at 843-849-3129.
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