The Impact of Distressed Properties on Your Homes Value

May 11, 2011

Within the past 12 months, there have been a total of 23 distressed property sales in Belmont (a mix of short sales and REO listings). Almost all of these homes have sold for far less than they would have if they were not distressed properties. Since they sell for less than standard sale homes, they impact the value of neighboring homes.

For example, let’s assume that a 3 bedroom/2 bath, 1700 Sq. ft. home that’s listed as a short sale closes escrow with a sales price of $800K. Had this property been listed as a regular sale, the sales price would have been closer to $875K (for simplicity, I’ll also assume that the property is in a decent location and in overall good condition). Now you’ve decided to put your house on the market and have received an offer of $900K. Now, unless your buyer is paying all cash for the property, the buyer’s lender will have to come in and perform an appraisal. If this short sale is right around the corner from you and has closed escrow withing the past 3 months, the appraiser is going to use it as a comparable sale. This leaves us with a $100,000 price difference, which means the appraised value will most likely come in at a lower value than your offer price, and in turn, the buyers will either have to come up with more down payment money or ask you, the seller, to reduce the price. I’m not saying that this will for sure happen, but I’ve seen it happen more and more frequently.

A good buyer or seller’s agent will meet the appraiser there and provide them with accurate comps, as well as point out any distressed properties that may have sold for less simply because they are a short sale or REO, and also be able to point out differences in comparable properties (i.e. a level yard vs. no yard, a view home vs. a home with no view, etc.). There are still a lot of REO properties that banks have been holding on to and are most likely going to be coming onto the market within the next 6 months to a year, so if you’re thinking of selling your home, be sure you speak to a local agent that can help you get your home on the market before values are further impacted by upcoming distressed properties.

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