REOs, CMAs and OMGs

Several months back, I spoke with a real estate professional who said she didn't include properties in a foreclosure process when preparing a report on comparable properties that sold recently -- also known as a Comparative Market Analysis or CMA -- for a home that is not in a foreclosure process. CMAs can give sellers an idea of how to price their home for sale given the selling price of similar homes.

But in a market that is laden with properties that were acquired by banks through a foreclosure process or sold through bank-approved short sales, it would seem difficult to ignore them. How are individual agents, real estate brokers and brokerage companies addressing this issue of which comps to use and which ones not to use? REO properties could have a host of issues that typical properties do not. A participant at the Appraiser Talk online forum noted that these are challenging times for appraisers, too, in determining which properties will best serve as comps for formal appraisals.

REO and short-sale properties, as distressed properties, may fetch less than those properties that are not in a foreclosure process and are not under any pressure to sell quickly. Even after they are listed for sale, REO properties could suffer "a significant amount of damage or vandalism (stolen copper pipes, break-ins, water pipe bursts ruining floors, etc.)" that could differentiate them from otherwise similar properties, for example, according to a post at the Appraiser Talk site. And how do agents approach a CMA for an REO or short-sale property when there aren't any other REO or short-sale properties in the neighborhood?

At Trulia.com's Trulia Voices site, one agent stated that foreclosures "have had a huge impact on the CMAs" in some neighborhoods, adding, "I always try to run one CMA with the foreclosures included and one without to review with my clients."

Another agent at that site expressed worry that appraisers are using distressed sales as comps, stating, "that is the biggest problem with the current mortgage meltdown. This is affecting every home in the neighborhoods with foreclosures."

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