I'm working on a report and have come up against a new (to me) situation. I'll speak to my supervisor about it in the morning, but in the meantime I am curious as to how others would treat this:

A comparable sale in a smallish subdivision is a foreclosure, but not from an individual homeowner. Apparently the developer went broke with an inventory of three or four homes left, and these were foreclosed on along with the common areas. The comparable sale was sold in November 2006 for a market price by the new owner.

Is this a legitimate comparable sale? I understand that if I use it I will have to disclose its history---which is rather involved and doesn't yet appear on Henry County tax records. I saw "as is" on the MLS listing and a development company name as the owner, so I researched it on gsccca.org and found out what happened.

I would like to use it, as there are only 7 sales in the s/d in the past 12 months: 3 ranches, 2 split foyers and one 2 story. My subject is a ranch.

Comments?

I have never used a foreclosure as a comparable but with that said, I think it is going to be more difficult to find non-foreclosures in some markets in the near future. I have just started doing some work in Lithonia and have a very difficult time finding arms-length transaction and non-foreclosure sales, in some subdivisions.

I wouldnt use it, but that is just my opinion. Is the value consistent with the other comparable sales in the area? If you use it, just be ready with a 4th comparable sale and an explanation.

Too true about the increasing prevalence of foreclosures.

DA, our office mandates 4 comparable sales in every report, and in certain cases an active listing. I would disclose this in any case. If I don't use it, I will either be comparing a ranch to a split foyer or two story, or will have to go out of the subdivision for two sales instead of one.

Sorry about your pain. Does the subject look anything like a split foyer? Some ranches do. If it doesn't then you have to go outside for similar comparable properties. Don't be afraid to go outside the subdivision, the rule is only so you dont bypass what is available inside. In your case, there is nothing inside.

The subject is a true blue ranch. The split foyers are those oddities that are 100% above grade on a slab. This is a lower-end subdivision. I suppose I will use the foreclosure, and will go out of the subdivision for the additional sales, keeping one in reserve in case I can't use the f/c.

I'd be glad to hear from anyone else who has run into this situation.

Kat,

You stated: "were foreclosed on along with the common areas".

Do you think this (common areas) issue has an effect on value as well?

Yes, John, definitely! I am in the middle of doing a couple of paired sales analyses between homes in my subject subdivision (Wyngate Enclave) and two in Monarch Village, a popular (larger) subdivision within a mile.

I'm expecting that will tell me what the location adjustment should be for the comparable sale out of the sub. that is in Monarch Village.

Here's a surprise: the foreclosure on the developer and common areas has had no significant effect/market reaction. I'm getting a range of $76-$80/sqft value for the same house in each subdivision during the same six month window of time. I will say, however, that many of the subdivisions in that area have overall problems with individual homeowner foreclosures, too.

And I thought this one would be easy Of course, everything is still challenging for me; I know this would be a breeze for you more experienced people. Thank God for wonderful supervisors---I don't know how some people function without them!

Kat,

IMHO, the fact that common area was foreclosed on as well as several houses should have no effect or affect on the foreclosure's, foreclosure resales or other houses in the subdivision. (except if the ammenties are not finished) Remember, the common area is now owned by the banks, and BANKS have money. If the subdivision is not totally improved with whatever the ammenties were supposed to be, the bank (current owner) now hold's the liability for their finish. I would think they would be most interested to get rid of the common area interest. Also, if there are lakes, ponds, swimming pools, tennis courts, or other open areas, the banks will have to maintain insurance, etc. It would be a good idea to find out who owns the H.O.A. and any liability. ( That could play a role in sales.)

I also don't believe in using a foreclosure as one of the first 3 comps if I am looking for market value as stated on the addendum.

Thanks for your reply, Big Boy. It's an interesting situation. The common areas were completed and there was little inventory left. Apparently the playground was built on a dump site that wasn't properly graded or filled in, and a child was hurt. The developer was sued and the case was settled. The playground has been fixed, the homeowners have taken over the association and fees were raised from $350 to $430, which I read as a positive.

Since that house was one of the last available it sold at market rate in 3 days with the lowest dollar amount of concessions of any of the comparable sales. The redlink deed lists it as a new house--that is, it hadn't been sold to an individual but was part of a foreclosed deal on everything. It looks okay as one of the first three with the appropriate comment, but my supervisor will have the last word tomorrow.

I have slogged through all the deeds and it now looks as though the developer may have refinanced the unsold properties under a different company name. I think I will pick this back up in the a.m.

Call the buyer and find out his feelings on his purchase and sale of the foreclosed property. Remember motoviations sometime is the key to research success.

Ah, Grasshopper!

I see you have not done many manufactured home appraisals!

Out in my neck of the woods, if I'm doing a 1004C report, literally ALL of the comps are foreclosures.

I have also run into situations where a site-built house has sold as a result of foreclosure on the same street as my subject, so I almost have to use it as the 4th, 5th, or so comp. But I sure have a long addendum!

Have fun!

Marty

Looking in FMLS, there are several active listings... with a wonderful description as a Swim/Tennis community. I wonder if the listing agents know what has gone down??