Laurence Paruta Homes for Sale in Somerset County, NJ

Do Appraisers Use Distressed Properties as Comparables?

I'm often asked by my seller clients if appraisers use distressed properties (short sales and foreclosures) as comparables when doing an appraisal on non-distressed properties. Last month, the Appraisal Institute issued a paper on the subject. In the paper, the Institute explained that:

“Foreclosures and short sales can provide important information for appraisers, who develop valuations based on market data and market forces.”

On whether an appraiser should use distressed properties as comparables, the Institute was very direct (all items in bold were shown as bold in the original paper):

“An appraiser should not ignore foreclosure sales and short sales if consideration of such sales is necessary to develop a credible value opinion.”

And they explained the possible differences between short sales and foreclosures:

“A short sale … might have involved atypical seller motivations and so might not be an ideal comp…

A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp.”

Bottom Line

Some will argue that distressed properties should not be used when appraising non-distressed properties. However, there is no longer any doubt that they will be.

Do Appraisers Use Distressed Properties as Comparables?

Don't Call Us . . . We'll Call You!

Bank of America is telling some homeowners who want to refinance to wait 90 days, according to sources in a Bloomberg story. BofA began a reservation system last week, asking people who call during high-volume times if they want to be contacted again in 60 to 90 days. The move may push borrowers to other lenders or discourage them from taking advantage of HARP during a time of record low interest rates.

Freddie Mac eliminated the minimum credit score requirement for borrowers seeking a mortgage refinance from their existing servicer, as long as they have at least 20% equity in their home, according to guidance released Thursday.

The change goes into effect for any refinances with a settlement date on or after Jan. 5. Previously, Freddie required at least a 620 credit score before allowing such a high-equity refinance to take place.

Somerset County New Jersey House Prices to Fall Over Next Six Months

In a normal real estate market, it may make sense to wait for the spring buyers’ to appear before placing your house up for sale. The current real estate market is anything but normal however. The increase in supply of distressed properties will overshadow any increase in demand for housing over the next 6 months. This is reflected in the findings of two groups: Clear Capital and JPMorgan Chase.

Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital explained last week:

“The housing market has yet to demonstrate the fundamentals necessary to overcome a seasonal slowdown over the next six months, which drives our projected 3.2 percent drop in national home prices through the first quarter of 2012.”

HousingWire quotes analysts at JPMorgan Chase:

“Home prices could dip another 6% to 7%, before hitting rock bottom in early 2012.”

Bottom Line

If you are thinking of selling, it would be wise to put your house on the market before prices fall again.

Effective October 1, 2011, the costs associated with getting a VA mortgage are going DOWN!

An overview: VA mortgages are bundled, securitized and sold in the secondary market with the backing of the Federal Government. In order to insure these mortgages, the government charges a type of insurance premium, called a VA Funding Fee, which is typically added to the loan amount (thereby financed).

Remember, too, that the VA (subject to some restrictions) will insure loans up to 100% of the purchase price for the home.

What is happening next week? On loans that close effective October 1, that Funding Fee is being reduced. Because it is typical that the fee is financed into the loan, the VA is effectively lowering the monthly cost (because the loan amount is lower) AND the amount that will be paid back when the home is sold (again, because the loan amount is lower). It’s a win/win for the verteran.



If you have any questions about purchasing a home with a VA loan or if you already have one and are considering a refinance of it because of the low interest rates, reach out to your favorite mortgage professional and explore the possibilities. There has never been a better time!