Foreclosure impact on comparables

no way, there are no foreclosures in manhattan!

No way manhattanites are made of gold. Gold is trading at $1300 ounce. When I shit, that's enough for 2 years of maintenance.

foreclosures always make prices of related product go up

it's about substitution value--if a buyer can choose between a cheaper foreclosure property and a more costly comparable unforeclosed property, the buyer will always opt to buy the unforeclosed property

If the foreclosure process has just begun, there are several ways it could turn out. The owner could reach a deal with the lender to stay in the apartment, in which case the foreclosure is a non-event. Alternatively, the apartment could be sold while in foreclosure (via short sale or not), and the sale would simply show up as a normal comp, as it should.

If the foreclosure does run its full course, then the initial foreclosure sale will probably have no effect; in all likelihood, the lender/lienholder will simply defend its position and take position of the property as "REO". In that scenario, the sale you need to worry about is the one where the Bank offers the apartment to the retail market, probably through a broker. For better or worse, that sale is a valid comp. It might have a bit of an "asterisk", but it's a legitimate arm's-length transaction. Buyers and appraisers will treat it as a benchmark for valuation - especially in the absence of other recent sales.

west81, how is a lender allowing a lemming to not suffer any consequences "no impact". Is that like if a child is molested in Africa, it's not an issue? Or a jew slandered against in Egypt a "non" issue to you? WTF r u smoking dude.

IT IMPACTS ALL OF US

and pls see how REOs sales are affecting Las Vegas... I hear ppl just go into empty homes to squat until someone tells them to leave... that's one less renter... one less homebuyer... one asset on the taxpayer's dime in free fall....

Real estate for sale
in NYC
We found 264 listings described as 'short sale'

Narrow your search
Bronx Brooklyn Manhattan Queens Staten Island

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264 short sales... m'okay.

how many of the 264 are in bronx and the worst of queens?

REO sales occur at a 25-30% discount off a traditionally negotiated price. Short sales something around 10-15%

Riversider: Where are you getting those discounts? They look suspiciously high.

REO may trade at a deep discount, but not because it's REO. It trades at a discount because it's vacant and often trashed. An appraiser can adjust for these attributes, as she would if the transaction were an estate sale.

As for short sales, there is no reason for them to trade at a discount vs. a "traditionally negotiated price" - except, again, that the occupant may have allowed condition to deteriorate in the knowledge that the bank will take the proceeds of any sale. In this case, the adjustment is for condition, not the short sale.

Keep in mind that the relevant discount shouldn't be calculated vs. prior comps, but against SUBSEQUENT sales and appraisals, since nba's question is how foreclosures will affect valuations going forward.

West 81, I found a number of linked such as the following. If you have better sources please post, I would be interested..

http://www.foreclosureconnections.com/blog/article/1759/bank-reo-properties-sell-for-between-25-and-30-percent-discount

One more

RealtyTrac, an online marketplace for foreclosure properties, has released its Q2 2010 U.S. Foreclosure Sales Report, which shows that foreclosure homes accounted for 24 percent of all residential sales in the second quarter of 2010 and that the average sales price of properties that sold while in some stage of foreclosure was more than 26 percent below the average sales price of properties not in the foreclosure process—down slightly from a 27 percent average discount in the first quarter.
http://nationalmortgageprofessional.com/news20827/foreclosures-comprise-nearly-one-fourth-all-q2-home-sales

Riversider - Your own link states the sampling problem:

"The discount rate of 27% is based on the median price of un-distressed properties sold during the same period. This is at best a crude calculation, but at worst a useful indicator."

Getting back to NBA's question .... West81's description of consequences for other unit owners sounds right. If the defaulting owner is able to sell in an open market transaction (even if a short sale), The Market will treat that as a valid comp. If it goes through to foreclosure and the bank 'buys it in' or it is auctioned off, that transaction should not be treated as a valid comp. If the bank or an auction buyer turns around to sell in an open market transaction, that sale will be a valid comp (indeed, that transaction should generate the best price available in the market without regard to the seller's motivation or profit). In other words, when all is said and done, it probably won't even be a damaging comp by the time someone buys it to live in.

The more damaging thing to the 'boutique' (small) condo in the meantime is that you probably will have a cash flow problem at least until the unit is sold once, and you may *never* recoup any Common Charge defaults by the present owner if the foreclosure sale is low enough to satisfy the bank but not the Condo's lien. (I assume the owner has stopped paying CCs as well as defaulting to his bank.)

Here's actually a live example.A foreclosure that's now a form of short sale by the referee.
121 east 19th st PHE
page description;
"The Lionshead Pent Houses. Rarely available. One of a kind. Bank Foreclosure." "This unit is sold as an REO property; all offers are subject to bank approval."
http://streeteasy.com/nyc/sale/558271-condo-121-west-19th-street-chelsea-new-york

A 2007 disaster baby that was sold for $3.4m with a $2.72m mortgage, is now, after some unicorn dust (aka american tax dollars) magically consolidates to $1,849,500 and owned by BofA.

So now if this property sells for 2 mil, this looks real good on the bank sheets......aye?

RS and w81, it's too early to tell what discount forced sales (REOs and short sales) are going to have in Manhattan. we will know within the next 2 years

the force sales are just barely staring around here thanks to the peak of the bubble happening 2 years later than in most places and the unusually long process it takes in ny state to foreclose. it'll be very interesting to see though how REOs affect the mkt.

not only FC, add to the mix CC/maintenance and tax liens!

natadmin, I was answering the question about how reos are priced.
that said, I don't see REO'S as being a significant factor

> that said, I don't see REO'S as being a significant factor

RS, you are right about the present. wrong about the near future i'm afraid :-(

just look at how many FC are on fringe areas, those that fall 1st. and please don't delude yourself thinking that people in manhattan are not over-leverage and only few are underwater.

simply stated, carrying costs are so high over here, that holding onto an underwater property just doesn't make sense once owners realize lower prices are more likely than higher ones. a certain 1 decade money pit is just not worth it for many hard working families.

carrying costs are so high over here (meant property taxes and maintenance sometimes equal a cheap rent), why waste more on housing than needed when the future appreciation is not there? many will cut their losses imho

so, narrowing it down, of the 263 properties in NYC as 'short sale', 49 of them are Manhattan. For reference, on SE, there are 11,540 properties listed as for sale. so 49/11,540 = .42%

Real estate for sale
in Manhattan
We found 49 listings described as 'short sale'
Information on Manhattan

put another way, per UD there have been 840 contracts signed in the past month in Manhattan, so 49 short sale properties comprise just less than 2 days worth of sales at the current rate.

so while indeed many people in Manhattan may be overleveraged, it would take a massive increase in these figures to meaningfully impact sales prices in Manhattan.

i agree that's just barely starting printer, and i explained you why, simply have a little bit of patience

also add to the distressed properties those with "motivated seller" (either very or extremely or highly). that's code for soon to be FC, 171 results: which is more like a week.

again, just starting. do you remember so many "negotiable" in the description of the listings? well... that being said add the "negotiable" (w/o the "highly motivated") onto the mix and you have 91 listings to the mix of distressed listings adn you end up with a THIRD of your 840 contracts.

so only morons (or severely uninformed people) will not low ball going forward imho.

first, 'motivated seller' or 'negotiable' can mean anything - it can mean an estate sale, it can mean that they're moving out of the area, it can mean they've already or are about to close on another place. it can be marketing language to inspire people to make a bid - sort of like the 'going out of business' rug stores.

i've been hearing the "wave of foreclosures" are just around the corner argument for 2 years now, and even by your extended and rather dubious definition of distressed listings, there are not even 300 in all of Manhattan.

when reo and short sales come onto the market, they seek to price so that they trade relatively quickly--given that, when the offerings sit, they will tend to reduce price relatively quickly--other than that they are just another offering, another comp--they are certainly not like many offerings that are priced high, sit, and whose sellers seem infifferent that they see little interest from buyers--

and i bet they dont really trade much lower than normal sales-they just make a point to find equilibrium price relatively quickly-and they made trade higher than apts that have sat for a while as they become stigmatized as stale pieces of shit with deluded owners who really dont have to sell anyway and will just jerk a buyer who seeks a fair price around--to finally attract interest those owner may have to reduce price below market

my bet is reo's and short sales that are intended to sell, sell at close to current market sale prices

Not-Admin
pre-04 has benefit of HPA
Anything financed in hte last two years required conservative down payment.
Manhattan economy is doing ok

I don't see the required conditions for what you predict.

> my bet is reo's and short sales that are intended to sell, sell at close to current market sale prices

is this a joke?

> I don't see the required conditions for what you predict.

no problem RS, let's check in 2 years to see how is going :-) hey, i'm willing to bet on what i say btw, just if you are interested :-)

> pre-04 has benefit of HPA

well, fortunately for my point of view i know a ton of cases in which homeowers heloc'ed like there was no tomorrow. so in many cases that HPA is GONE BABY GONE....

that's a ton of debt that ends up making holding on more expensive than renting... same all, same all... manhattan is NOT that different than any other bubble areas. i'm sorry to say.

printer, you are so cute... if you close your eyes, I'm sure you see angels......

would have to disagree...wbtom..... when you buy a repo-ed car, even with same warranty/condition etc... the repo-ed car will always get dinged.... same w/ REO or Short. If there is no difference then why "advertise" REO or Short? It's a way to differentiate product, different product= different price. IMHO

> my bet is reo's and short sales that are intended to sell, sell at close to current market sale prices

why on earth would a buyer go through the headache of a short sale if it's not for a good sizable discount from current prices?

i dont know that buying a short sale is necessarily a headache--if the bank acts quickly, as they often do, to accept an offer, no headache---and there is risk with any purchase that the seller dilly dally and make the process of getting a reasonable contract painful and time-consuming---not sure it happens more often with short sales tho i may be wrong

short sales agreed to by bank require buyers to move quickly to secure financing, inspect etc; but that's not a burden for someone who wants a place

if one subscribes to the theory that an apt priced well given current market attracts serious buyers and effects a quick sales at often the best price; reo's and short sales, if priced to sell, should not trade at a significant discount

whatever the case they are supply that comes to the mkt to trade, quickly--and they are legit comps as such, much to the disappointment of sellers holding out for some fantasy price based on fond bubble memories

not sure i agree with your policework, there, wbottom. a short sale implies less than the equity. that can mean something close to the market, or not. in a building where there is little to no sales activity, it isn't hard to envision a short sale that is both consistent with the market (no sales) and a significant reduction from an earlier sale.

This phenomenon has destroyed new construction in suburbia. A builder I know has been unable to secure financing for buyers because essentially all home sold in the town in the last year were foreclosures or short sales. Impossible to comp a new construction to that - no banks willing to provide a mortgage.