Short sales are generally listed near fair market value. Generally the fair market value of a short sale is lower that a standard sale.

Allowing brokers (who may have a future vested interest in the transaction as the listing agent) to prepare BPOs has to be the most stupid idea every invented.

Every short sale list price I see is basically a low ball number to attract multiple offers.

Appraisals require Listing comparables.

So yes…….. a stupid broker can ruin a neighborhood’s value trend with a mispriced short sale listing.

Ask them to BPO a 2-4 family property and you will see a deer in the headlights.

Ask them to define what a deficiency judgement is …….

Entire industry has DEGRADED into functional illiteracy…………..

I am pleased to hear that short-sales are actually occuring. Maybe things are changing. Nevertheless, short-sales have remained a very small portion of the market almost everywhere, even in the most stressed regions.

Short sales are occurring in our Puget Sound Market.

Our office has closed several short sale transactions with 2nds. A lopsided number of short sales around the country were purchased with 100% financing, thus, a good majority have 2nds involved. Just got another short sale approval late last week with a 2nd mortgage that was essentially wiped out .

Lenders are taking a beating, no bones about it.

As for countrywide, they are notoriously incompetent or plain overworked. They take
their sweet time in deciding. They probably have the highest bad loans in the industry anyway.

This is the scenario where the seller files bankruptcy and motions the court to sell the home free and clear of all liens. I have never had oppisition to such a motion. The advantage to the seller is that they deal with their debt in one place and avoid the cancellation of debt income from the IRS.

My experience is that short sales where a 2nd is involved just don’t a happen.

An example of how ridiculous the extremes to prevent reality and natural forces work is a recent letter from the SEC to the financial industry whom many believe are already bankrupt if they valued their assests fairly. Each quarter the financials disclose more nightmares as they announce massive cash infusions while they fess up to some offsetting write-downs. The SEC recently issued a letter that allows wiggle room in pricing their assets at current values to prevent actual fair values from reaching the public and to keep the insiders from the pokey. The SEC’s solution for the contractionary version of this dynamic is simple: ignore those market prices if they are too ugly. From the release:

“Fair value assumes the exchange of assets or liabilities in orderly transactions. Under SFAS 157, it is appropriate for you to consider actual market prices, or observable inputs, even when the market is less liquid than historical market volumes, unless those prices are the result of a forced liquidation or distress sale. ”

If you ever invest on margin and your broker issues you a margin call for either more money or a liquidation trying telling him that the value of your securities are distressed and that the actual value is much higher thus eliminating the need for more capital. Tell him what is good for the goose is good for the gander and then watch them liquidate your account post haste.

I disagree. As other posters have pointed out, an increase in short sales is a result of an overall decline in the market price, not the other way around.

If X houses are for sale it matters not a whit whether they are short sales or they have equity. The market price is where supply meets demand. Period.

Shane is an appraiser and blogs under the name apella. See comment 15.

However, I am going to agree with Fast Freddy about the slim chances of short-sales ever occuring. Even the most seriously depressed markets have precious few short-sales these days. The reality is that most lenders are just unwilling to take significant losses through sales, and won’t really start seriously contemplating losses till they have reposessed the property through foreclosure.

Most buyers looking for deals should just wait till the properties are real-estate owned. Even then, you have to wait. Lenders are extremely reluctant to accept low-ball bids on REOs. Instead, they will slowly lower the price by $10K or so every few months until they find a point where it clears.

In summation: to get good deals on foreclosed homes, wait for a couple years after the neighbourhood has had dozens of REOs. By that time the deals will be getting pretty sweet. Until then, no one is ready to deal. The home-owners simply can’t accept a realistic offer because it is for less than the mortgage, and the lender will be unwilling to accept significantly lower prices until all the comps in the neighbourhood show massive depreciation. Thus, we wind up in a waiting game, with REO prices being slowly reduced month after month until they finally hit bids.

The delta between what the seller owes CW and my offer is $35K and from my understanding, foreclosures cost the mortgage lender $60 to $75K, yet the house stays empty. I don’t believe some institutions want short sales to occur and prefer to go through foreclosure. If this is a false assertion on my part, please let me know because a 35,000 loss seems like less damage than a 60,000 loss while the house sits.

If it seems like I’m frustrated, well, you got me! Stay clear of short sales unless you can wait 3 months and are willing to accept a “no” answer.

PS–software engineer–all sales will show up in the county records even if they weren’t on the MLS. Good practice is to check there, though again, not everyone is doing their homework like they should.

A sale may be a sale, but not all sales are indicative of fair market value. Please go here: http://en.wikipedia.org/wiki/Market_value . Read the entry–it’s a pretty good explanation of what fair market is and how different types of situations will affect it.

I bought a Bellevue home for about 60-70% going value from a relative in 1990: believe me, relatives selling homes to relatives is about the only way you can get a gift from a parent bigger than $10K in a year and the only way the kids caould qualify for the house….ask Seattle homes owners, a good chunk got into real estate that way or through inheretance.

You think theSeattle Middle Class can afford $600K homes?….LOL

I know many would like to stop prices from going down and will do what ever they can to hide short sales, but it won’t help in the long term. You never heard RE salesfolks talking about ignoring outlier prices on the hide side during the boom, but we should ignore them on the down? Give it a break folks.

In my experience (and it’s been quite a bit of experience lately) something else besides just a fluctuation in the market usually needs to happen before a homeowner is going to want to take a loss on their property. Most do think of it as ‘their” property and most are aware that a lender is not likely to let them walk away from what is owed. And bottom line it is a minority of people who won’t try to stay in their home if it’s at all possible. Most of the short sale situations I’ve seen do involve other changes in the seller’s life that push them in the direction of having to sell.

Lenders would probably ideally prefer all mortgage appraisals to be based on the price when sold as a short sale, but there is no way to get that number in a non-depressed market. So they go by normal market value and adjust for the cost of a short-sale through down payment, PMI, or higher interest on second mortgage.

I think the answer to this question of whether short sales should impact neighboring valuations is obvious:

When we look at the reasons that so many of today’s sellers are in distress, it isn’t because there was a massive run-up in the rates of deaths, divorces & job losses.

And so when a seller chooses to take a 30% loss instead of an even greater one, we should ask: is this the result of death, divorce or job loss? Or is it the result of the same circumstances we’re seeing everywhere: fewer qualified borrowers, mortgage rates resetting, low or negative owner equity, over-abundant new construction, and interest rates set to rise?

As far as comps before the foreclosure(s) became an issue many lenders would require two types of appraisals. The first for refinance or purchase where the comparables were typical for the market or “Non REO” and then if the property was going into foreclosure the lender would request the same with a short sale price with typical REO comparables. This may have been done because at the time the typical buyer of REO properties were cash buyer/investors. Because the lending world has changed so much today and that many markets have such heavy REO inventory that the REO inventory is now typical listings/solds/comps lenders are requesting more data in appraisals.

Because each market and/or neighborhood is different based on the typical buyer for that market/neighborhood lenders will look at each market or neighborhood with different views and therefore require different appraisal data request. In normal speak, if the neighborhood is one bought into by employee transplants who do not have time or money to fix up a REO then the market/neighborhood consist of typical Non-REO comps and so that is what the lender may want to have the property compaired against, if the market/neighborhood has such a high raito of REO property where the buyer can not help to take the property into account when buying then the lender will request that data be taken into account for the appraisal report.

Common sense would dictate that in an open market supply and demand with discounts taken into play would hold an effect on the remaining inventory. With appraisals the true use of an appraisal is to address a problem solving issue per the clients needs and time limits/guide lines.

In my personal opinon, REO ratios do hold effect on over all market values providing that the REO comp is typical for the market or part of a trend.

The definition appraisers use for fair market value is, “The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”

There a lot of ways in that definition that a sale might not be reflective of market value–”undue stimulus” such as divorce, death in the family, job loss are often the reasons why a sale ends up being short in the first place. A seller would typically not, and a lender would typically not, be willing to take a 30% loss on a property unless there was some outstanding reason why they needed to do so.

I think ANY sale that is $200k off comps is probably going to be looked at suspiciously as a comp – but the fact that it is a short sale? I don’t understand the relevance.

If I were a buyer, I would clearly want to know what all the sales were in a given development or neighborhood to help establish some sort of value. If a short sale (s) were included in the group, then it would have an impact on my offer. How much, I’m not sure. If I found that similar property were financed in the same or similar manner, (ie…100% financed or very close to it) as the short sale, then I would start to question the efficacy of values in the development or neighborhood.

How does foreclosure impact the neighborhood?

On a different note:

I have heard from good sources that appraisers are being told to hold values down in order to protect lenders. Just the oppisite of a few years ago.

We have gone from greed to fear in the lending market.

Why does it even matter ‘why’ the home is being sold? If I am the buyer purchasing at $610K, I really don’t care that the family sold due to a short sale or due to Daddy getting transferred to Columbus, Ohio. I feel it was worth $610K, I offered $610K in a transparent environment, no one else outbid me, isn’t that the market price?

For instance in a neighborhood of homes where homes usually went for $750-800, we had a home recently listed for $587K but it was totally trashed. Someone bought it in less than a week though and will put some money into it and be left with a very nice house. Another property went pending a few days later at $615K–also, in pretty poor condition and the sellers were in a distress situation also. Now I know this neighborhood and I know that this pricing is unusual and probably not really reflective of what a normal buyer and seller would agree to but they’re also the only sales posted there in the last 6 months or so. So now the question is, are they still outliers or are they really indicative of what buyers will pay to live in this area? If buyers are afraid they’re going to lose money then it makes sense they’ll only move in on properties that are offered at a discount.

Most likely we’re not going to see 30% price drops become the norm but properties like this are going to have an influence on the general direction and speed in which we go that direction.

What I want to know is who the frak gave them a zero down loan on that amount. You’re basically putting them into a million dollar house, no money down. Who thought that was a good idea?

We need an appraiser to help us out. Let me see if I can go round one up.

Okay, okay. There was a bubble. Y’all happy now?

1) We all gang up and chase houses for sale in neighborhoods around recent short sales.
2) We then make lowball offers on them, hoping to be the “2nd home” that defines the trend.
3) The rest of the neighborhood will inevitably take a steep fall and the bubbleheads save the day, providing affordable housing for the masses!

“One sale does not a trend make” In essence an appraiser will NOT use that sale as a comp and it will NOT effect the overrall value of a given mkt. **However if a 2nd home closes at the same price(or near it) then we are forming a trend** and it will surely begin to effect the give area.

There you have it! Enjoy the sun!

Ray Pepper
Broker
http://www.500Realty.net