On the Move: Demand Intensifies for REO Properties

When it comes to “lower-priced REO [bank-owned] properties,” homebuyer demand is on the rise, reported HousingPulse earlier this week. In fact, move-in ready REO properties spent just 10.1 weeks on the market in November 2011, the lowest in more than a year. Damaged REOs spent only 9 weeks on the market and together the two segments and short sales made up 46.1 percent of all home purchase transactions in November[1]. Average move-in ready REOs were selling for $189,700 last month, while damaged properties sold for an average of only $98,900. Home sellers and their agents are complaining that these low prices are artificially depressing conventional sales prices, but presently the home appraisal system does permit appraisers to factor in the foreclosure/short sale markets when estimating home values.

Many critics of the current appraisal system argue that if distressed properties and foreclosed properties are going to be factored into an appraisal, the state of the interior of the property and the transaction type via which the property was sold should play a role in determining how a “comp” [comparable property] is used when determining the value of a property. However, Georgia appraiser Sandee Pennington of Appraisal Resource of Georgia notes that appraisers are “not privy to the processing of the transaction” and are not always aware of what type of property they are dealing with if that property is a short sale when they do an appraisal, although REO status is usually known. Generally, appraisers do not even have direct contact with the lenders anymore, which can make the evaluation process more difficult.

Do you think that the REO “surge” is good news for the market?

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[1] http://www.dsnews.com/articles/reo-properties-are-moving-faster-survey-2011-12-20