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Banks Are Blind to the Effect of Bank Owned & Short Sale Properties

May 24, 2012

According to the New York Times, the commercial appraisal system is broken.  At least that’s what I read in an article the Seattle Times pilferred from them last week.  As I read the article I was struck by two things:  1. I know nothing about commercial appraisals  2. If commercial appraisals are anything like residential appraisals then these findings are faulty and misleading.

Here’s why I think I might smell some stupidity here:

“Using data from thousands of securitized real-estate bonds in which the properties were foreclosed on and liquidated, the study, by KC Conway, an executive managing director at the brokerage firm Colliers, and Brian F. Olasov, a managing director at the law firm McKenna Long & Aldridge, found a wide discrepancy between the appraisal values and the eventual sales prices of the properties.”

If the basis for their findings was predicated on the sale of foreclosed properties, of course the original appraisals these properties were purchased with are going to appear elevated!  They are distressed properties.  Distressed properties sell for less… at least they do in residential real estate and I can’t imagine it’s much different in the commercial arena.

So how much less do REO (bank owned) and Short Sale properties sell for?

Let’s take a look at the latest NWMLS residential stats for King County & the Seattle Metro Area:

April in King County saw a total of 1746 completed home sales. 16.4% of those sales were REO properties which sold for 55% less than non-REO/Short Sale properties.  Short Sales weren’t much better.  Short Sales made for 11% of those sales and sold for 42% less than non-REO/Short Sale properties.  The median price for sold REO properties was $187,000 vs. the non-distressed median sales price of $415,000.

Those are staggering numbers!

It’s numbers like these that make me question the accuracy of these findings. And though this study was done by a supposed nuetral third party, it appears to be part of the blame game the banks so ofter take part in.  I must say, it puts sand in my shorts when I see banks blaming appraisers for failures in their lending practices.  Let’s not forget that we have an all new Federal mandate (HVCC: Home Valuation Code of Conduct) thanks to the unscruptulous acts (blackmail) banks were committing when they had direct access to appraisers.

All I know is that banks refuse to acknowledge that there is a difference between the sale of a non-distressed residential property and the sale of REO/Short Sale properties.  As I read this article, this appears to be the case in commercial market as well.

What do you think?

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