A Note on Distressed Comps
Every central phoenix neighborhood, especially places like Arcadia and the Phoenix Historic Districts, can have a wide price range of listings and recent sales, all within blocks of each other. A common complaint I hear from concerned homeowners is “ugh, my neighbor’s house was just foreclosed on”…or “there are three Short Sales in my neighborhood, I’ll never be able to get what my house is worth if I try to sell in this market.”
The short answer is that it depends.
Short sales are generally not considered to be arms-length transactions by appraisers because the agreed upon sales price has been influenced by factors beyond market value. Appraisers should try to avoid them, but if there are no other sales to use, short sales can be included if appropriately identified. “Appraisers should put little or no emphasis on short sales unless they have studied the sales, discussed them at length with the parties involved and determined if they were in fact arms-length,” says a local appraisal management executive.
REOs may be appropriate as comps, depending on the neighborhood. “There are markets where the entire market is distressed,” In other markets, there is a clear distinction between REOs and seller-owned properties.”
“The question is: Are the properties truly comparable or not?” This is where discernment is required. It’s about the experience, knowledge and competency of the appraiser.”
If you have some “traditional” sales within a mile radius that are comparable to your home in size and features, the appraiser should lean on those first. But all appraisals are subjective, so there are certainly no guarantees in today’s market. I recently had two independent appraisers appraise the same property and they came in 20% apart in their valuations, and that creates a lot of uncertainty and anxiety for Buyers and Sellers!
