I need to call on the collective minds of Arfcom.  I am being transferred, and have a relocation company offering a buyout on my home.  The comps include two foreclosures that recently sold near my home, and brought the buyout offer way down.  

Is there any kind of industry standard, or any studies done to determine the average cost of repair/renovation for a foreclosed home?  Typically the homes are damaged, have missing items, etc.   I know it goes on a house by house basis, just wondering if there is a flat number or a formula to determine what is the average cost to repair a foreclosed home.  I have to prepare an appeal for the appraised value of my home, and need all the ammo I can get.  I am consulting my realtor, but I thought I would try here.  

FYI, 3000 sq ft home, 4 years old, 4br 2 1/2 bath in metro Atlanta.

Any assistance would be greatly appreciated.

foreclosures will bring the values in the neighborhood down, however, there should be other comps in your area that your appraiser can use.  If I were you I would try contacting him/her and asking about why they used two foreclosures instead of two homes that were more comparable.

There isn't any that I know of.

What condition is your home in? Any recent remodeling? What were the ages of the comps and your home?

My home is in good condition, 4 years old.  The other houses are comparable in age.  The subdivision is only 4 years old.  There was only one other sale in my subdivision, and that was the other comp used.  There was over $20k difference in the two foreclosures and the one non-foreclosure.  I think I may go ask the people that bought the foreclosures how much they had to spend on repairs.

Foreclosure/REO comps shouldn't be used unless the majority of homes in your neighborhood are these.

The shitty part of the whole financial market meltdown, is that a sinking tide lowers all boats. No matter how nice your home is, the value will suffer to a degree.

Ask your agent to help provide you with sales comps that are truly comparable to your home.

Agents are usually much more accurate when it comes to actual sales. Most appraisers get their comps from the realtor's database anyway.

I just stayed at a Holiday Inn Express.

Bull.

There is nothing special about your house.  There is no sacred right that you can always sell it for at least what you paid for it.

Supply has gone up, and demand has gone down.  That means prices go down.  That holds true for everything.  If recent comps have been foreclosures, guess what?  That's still a true indicator of the actual value of your house.

Whats happening is to determine value for your home appraisers must do a comparable. The only com parables that have sold in your area are more than likely the foreclosures. These were sold at a loss and therefore your home will take a loss when an appraisal is done.

This is why America is folding right now. This is why the housing market is folding. Your unfortunately the victim as Im sure many of us will become.

* Experience - 8 years as a mortgage broker.

Wrong.

Fair Market Value is Fair Market Value. Condition is still a major factor in determining FMV.

If your home is well kept and in move-in condition, and the other 3 homes on the street stink like dog shit and have holes kicked in the walls, your home will sell first and at a greater value.

All home values in the immediate area will suffer though. It's just to what extent.

I understand that the foreclosures are comps.  I am not disputing that I am competing with them.  If the foreclosures needed $20k in repairs to get them in the same condition as mine as it sits, then I could make a case my home should be valued higher, as the end purchaser won't have to spend the $$$ on repairs.  This is for a relocation company buyout, not a sale to a market buyer.

And what does that have to do with using foreclosures as comps?  Unless you're assuming every foreclosure is trashed, and every private sale is in perfect condition.

It's factored into the appraisal.



Let's say the comp is inferior to your home because it's damaged....they adjust the value of the comp upward to compensate for the necessary repairs.

It has a lot to do with FMV. An appraiser is suppoed to use the "most comparable properties" to the subject. In other words, the ones with the least amount of adjustments.

Regardless of condition, with all other factors being equal, a foreclosure/REO will always be worth less than an owner-occ. That is just one of the reasons that HUD will not allow anyone marketing their homes to refer to their homes as "foreclosures". Any marketing you see on a .gov owned home can only be refered to as ".gov/bank owned".

There is no hard and fast rule about using foreclosures in appraisals.  The appraiser has to make the determination wether or not the foreclosures are affecting the market.  If so, then he/she should be taking them into account.  A couple of foreclosure here and there don't necessarily change market expectations.  However, if there have been a significant number of them(which is the case in nearly every market right now), or your property will be in direct competition with forecloser listings they may very well be putting downward pressure on home values.  If that is the case then the appraiser has the obligation to consider their effect.  Current market activity is especially important to relocation companies as they will have to market and sell the property after the buy out.

Relocation companies usually order at least 2 appraisals and maybe a 3rd if there is a large gap between the first two appraiser's opinion of value.  I would study them both very carefully.  If you still disagree, then have a local realtor pull comps in your neighborhood and 1.)  see how many comparable foreclousres are listed 2) see if the appraisers overlooked any sales which you feel are more comparable to yours.

I will tell you that in todays market, lenders and most likely Relo companies are taking a very conservative approach to their transactions.

You may be in a situation where foreclosures are the market.  The underwriting requirement for your loan may limit the appraiser to using sales within six months prior to the effective date of the appraisal.  If foreclosures are all that have occurred, that is the market.  Adjustments should be made for condition and required repairs; however, it is highly likely that the appraiser does not know the condition of the interior at the time of sale.  You should do a bit of research and contact the broker for each of the sales and verify the condition of the properties used as comparables.

Excessive foreclosures in an area do bring down the value of nearby properties.  They are  an indicator of an over inflated market.

As far as I know, there is no industry standard or factor that is used to determine the average cost of repair for a foreclosed home.  This could be extracted from the market on a case by case basis, but it would vary by demographics and regional costs.

From my experience, realtors only use MLS, appraisers use many sources for data.

Fair Market Value is an accounting term.  Appraisers use market value.

Hello ETN:  

I am a Realtor.  There is no formula for determining average cost of repair for a foreclosed home.  Many foreclosed homes are in perfect condition.  

Why do you have to "prepare an appeal for the appraised value" of your home?  Appraisers are professionals who are fired if they cannot do the job.  If you have to go to Arfcom for advice, I'd say that you need to fire your realtor and get a better one.  A good realtor should be able to analyze the appraisal to determine its validity.  

The market is a REAL THING.  It is not something that can be argued about or appealed.  Unless your realtor tells you that the appraiser is smoking dope, the appraisal is probably spot on.  

––Freeway

I think the only thing you can do is what I would do as an LO trying to see if there was a deal there on value.

1st it would be nice knowing who the appraisers were that did the appraisal. 2nd we need to find an appraiser who would give us an alternative value using guidelines as your suggesting. One that would easily do that would of course be one that appraised 1 or more of the foreclosed home.


There cant be too many appraisers servicing that area. Anyways you would find an appraiser that would give you more value using compensating factors. Then use that appraisal as leverage for a revaluation and hopefully a more amicable arrangement..


ETA: I agree with Freeway and my first post said the same. This is a longshot but it may work especially if they are giving you soem kind of an appeal for value. Sounds like double talk though on their part.

This is true for the most part, but some adjustments within the appraisal are a bit subjective.  Especially if there is little market data to go by.  However, an appraiser usually has a pretty good idea of how maket the market reacts to things.  

If there have only been foreclosure sales in your neighborhood then that very well may be the market.  Also keep in mind that appraisers work under guidelines usually specified by the client.  

Also there is a lot of talk about the cost of things.  Don't confuse cost with value.  Just because something costs a certain amount, it doesn't mean that it adds that in value.
Appraisers don't make adjustments based on cost.  They make adjusments based on market reactions.