Three states move to ban foreclosure sales from appraisal values and Nevada is one of them. A current bill proposed would exclude or restrict foreclosure sales from being used as comparisons to determine the value of homes around them. See Three States Move to Ban Foreclosure Sales From Appraisal Values
What are your thoughts on such a measure? Agree or disagree?
Another bill pending in the Nevada Senate, SB307, would require banks or other lenders to send homeowners an offer to pursue mediation or to discuss their financing options before sending out default notices. See Would New Law Help Or Hurt Foreclosure Process?
SmartMoney
Wow, that’s just an incredibly dumb idea. Must be sponsored by liberals.
Comeback Kid
Excellent idea and I’m anything but liberal. Although maybe that was sarcasm, Smarten?
Its better for the both buyers of conventional property as well as buyers of foreclosed property, which most of the time are two different animals anyway. Having your home value dragged down because your neighbor didn’t pay his mortgage and it was sold at wholesale doesn’t help anyone, IMO.
Sully
Lemme see; 90% of all mortgages are currently bought by the government via the fannie/freddie disasters. Federal law says foreclosures are to be included in appraisals.
So how does this law help anything? It probably doesn’t however it’s nice to know all the other problems in Nevada have been solved and the lawmakers now have nothing better to do than consider this type of legislation.
safeway
I mentioned this in the thread below on foreclosures. It appears the “reasoning” behind the proposed legislation is that if we deceive ourselves into pretending all the foreclosures are not continuing unabated, and we deceive ourselves into pretending that foreclosures do not impact values, then we can deceive ourselves into prosperity.
Norton
Yea sure. So when I am looking at a house to buy I am supposed to pretend that the house next door didn’t sell at foreclosure for $100K less than any of the comps used by the appraiser because foreclosures “dont’ count”.
Would it not be malpractice on the part of my realtor not to “mention” to me that the next door foreclosure was not included in the appraiser’s comps?
Puh-lease.
Cooley
Maybe we ought to legislate that houses that were sold as short sales don’t count either. Let’s just say that 70% of all sales today don’t count as comps. Let’s just engage in absolute and total denial of reality.
Sheer frickin’ idiocy.
Steve Herschbach
In the case of Illinois and Missouri property taxes are based on assessed values of the property. I suspect they are trying to keep foreclosures from eroding their tax base. Since that is a state issue they don’t care about federal financing requirements.
Tom
This idea is reflective of the apparent growing thinking in our society that passing a new piece of legislation is the way to solve everything. In my opinion, `Safeway’ has it right, and passing a new law saying that foreclosures don’t count in valuing properties doesn’t make it so in actuality. All it might do is tend to pressure lenders to find some other way to decline a loan that isn’t bank-worthy because the true market value of the proposed real estate security for the new loan doesn’t come close to the statutory value.
Under the reasoning supporting this new proposal, I would also like a law, please, that says that any 7, 8, or 9 card dealt in a Blackjack game in Reno can also count as a 10 at the player’s option, and the true face value of the card doesn’t count. That would surely spur hotel visits and help the economy, right?
Sully
Tom, I don’t know if that law would spur the economy, but it sure would get me back to the blackjack tables in a hurry! 🙂
Jeffrey Dow Jones
On the one hand, this isn’t such a bad idea. There’s a legitimate reason why you’d want to exclude the value of a foreclosure and it’s because the property is typically in such worse shape than a typical owner-occupied home. Rather than excluding foreclosures altogether, it might be better for appraisers to make some kind of adjustment to the value of these properties before inappropriately affecting the rest of the neighborhood.
That being said, the idea of trying to manipulate market prices is insane. The market is bigger than you and one way or another it’ll set the price that it wants to set to get supply and demand to clear. I’m of the belief that the best government response to the housing crisis would be to simply get out of the way and let the market clear.
MikeZ
This is a terrible idea.
The only reason given: distressed sales distort the market, is both false and ironic at the same time. This change would itself distort the market.
Kelly Anderson Wright
Jeffrey, you couldn’t be more wrong about the condition of foreclosures… I have been inside more than 100foreclosed in northwest Reno, and only one would require some serious work, because the guy who’d hoped to flip it didn’t finish his remodel.
This law is a waste of time, because 1) removing devalued properties from the equation now won’t change the fact that property values in Reno have dropped 50% or more already, and 2) appraisals are based on sales of comparable homes relative to sf, brs, baths, and location… NOT how the house happened to come up for sale. How or why it is up for sale is irrelevant.
Comeback Kid
KAW – How or why a house comes up for sale is totally relevant – buying on the courthouse steps requires cash in hand, buying foreclosures or short sales typically is a bidding process with a long wait for response. Buying from a owner is a different process, usually using more conventional financing and quicker response than dealing with banks. There’s also a history of the house involved when an owner is still there.
Most buyers tend to be one type or the other, which is why I still think its a good idea to separate foreclosures from conventional sales. It doesn’t mean those numbers don’t count, but it’s a good way to differentiate the sale process and consequently values.
As for all the houses in foreclosure being in good shape, I have a hard time believing that with what I’ve read here.
Martin
There is no one condition that all foreclosures are in. Some are very nice. Some are totally trashed. Some are in not beautiful but not awful condition.
I agree with the consensus here that this legislation is absurd. This is Orwellian. Let’s just pretend that what is happening is not happening.
Tom Joad
Every house in Reno today is down 50% in value from 2006. I agree that this legislation is stupid, but even if it had merit, this train left the station a long time ago.
longerwalk
I’d like to think that foreclosures would be considered as distressed sales, not indicative of the general market. True, perhaps, in a ‘normal’ market. Unfortunately, the market now includes vast numbers of foreclosures, which means they have to be included. That’s if we are talking appraisals by banks. If we are talking appraisals for tax purposes, I’ll have to respectfully disagree, and go with those who disapprove of a degradation of the tax base for no apparent reason. Banks don’t HAVE to foreclose.
Zen
And once again the legislature provides an example as to why it pleases me so much that they only get to meet once every couple of years! Can you imagine if they were able to do this full time? Here is an idea they may want to look at; pass a law that the supermarkets can’t show any increase in prices from here on for their merchandise, both in the store and on your receipt, but they can actually pull the real increasing costs out of your bank account. Same thing for fuel at gas stations. That way we will all go home and sleep at night not knowing that we are really broke and then continue to vote for these imbeciles.
Guy Johnson
Thought this CoreLogic report, released yesterday, might be relevant to the discussion: CoreLogic Home Price Index Shows Year-Over-Year Decline for Seventh Straight Month – Home Prices Down 6.7 Percent; However, Non-Distressed Properties Showing Signs of Stability.
Although national home prices, including distressed sales, declined by 6.7 percent in February 2011 compared to February 2010, excluding distressed sales, year-over-year prices declined by only 0.1 percent in February 2011 compared to February 2010.
Sully
longerwalk, appraisals for tax purposes wouldn’t apply in Nevada as it is based on replacement cost less depreciation. Part of the budget problem here is the massive budget increase passed by the legislature in 2003 (05?) during the good times. Of course the government entities spent right up to the new limit and now have to cut back.
Far too many houses were built with inflated building materials (prices) thus raising tax base for newer homes creating an unbalanced or unfair tax burden on these newer homes.
I would expect to see some sort of modification to the current property tax calculation method by the legislature, however this particular law doesn’t seem to address the problems in Nevada, just seems to make things easier for new buyers to get a loan with a hefty appraisal attached.
Crowley
“I would expect to see some sort of modification to the current property tax calculation method by the legislature…”
Nope. No such legislation has been introduced, and we are now past the time where any new bills can be introduced.
Price per square foot not equal across sale types | RRB Home
[…] ongoing discussion/thread regarding removing foreclosures from appraisals (See the comments under Nevada moves to ban foreclosures from appraisals) got me thinking: 1) is there an inherent difference in value between the different types of sales; […]
Guy Johnson
I’ve just posted the price-per-square differences by sales type, if you’re interested:
Price per square foot not equal across sale types.
Rijman
The proposed legislation is ridiculous. In some markets foreclosures and short sales predominate, so they are the market. Typically, if you have an oversupply of REO’s on the market, similar non REO properties will be affected. Who will pay $120,000 for a home when there are 4 or 5 similar REO’s for $80,000? If Nevada passes the law it won’t necessarily affect appraisals anyway because Fannie Mae and Freddie Mac guidelines require USPAP compliance and ignoring relevant comps is in violation of USPAP, Fannie and Freddie guidelines. Appraisers will be forced to break the law for Fannie/Freddie transactions or they stand to lose that appraisal work.