Clients often ask me if appraisers use distressed sales (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, and in it, explained the following:
“Foreclosures and short sales can provide important information for appraisers, who develop valuations based on market data and market forces.” This is especially true when the number of traditional sales is limited.
“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.”
The bottom line is that 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.
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