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Foreclosures causing Prices to Tumble in Mississippi Gulf Coast

Mississippi Gulf Coast is suffering from high prices due to foreclosure

Foreclosures are causing prices of condos to tumble in Mississippi Gulf Coast – falling to staggering low levels. Many projects are hanging unfinished in mid air. Many of the investors have walked off from the properties that have gone underwater. But realtors are now busy again to make sharp profits while prices are at record low levels.

The types of buyers coming in today are changed with less number of investors. More people are keen on the condos as their primary units of residence and also vacations houses. The agents of Louisiana are observing that the locals are eager to settle again into second houses in Harrison County (west).

Tashia McGinn a realtor of Beau View condo in Biloxi said, “Real estate is such a valuable commodity if you can pick it up at the right price. If you have the money to buy, it’s the right time to buy. The cost of construction right now would be double the cost of a unit.”

Condos that generally used to sell of $400 per sq ft are now being sold for $220 a sq ft. At Beau View there are still 30 units remaining unsold in a complex containing 112 condos. Beau View has been spared too many foreclosures but future plans for building more condo towers have been kept on hold until the market stabilizes.

Carlene Alfonso working for Coldwell Banker Alfonso Realty Inc. noted that some of the agents were not releasing the correct figures and holding back some details from the MLS so that prices cannot be further lowered by the investors and evaluators. In other condos the prices are much lower. Alfonso observed, “There are a lot of foreclosures, but they’re being bought up quickly. Most of these are cash sales. There are investors out there who are buying foreclosures because the prices are just unbelievable.”

Another opinion is that apart from foreclosures the condo scene has totally altered since the lashing of Hurricane Katrina. Initially the tumult had pushed off the buyers. Prior to the hurricane it was not difficult to find buyers for condos because of the growing housing bubble.

The president of Gulf Coast Investment Developers Inc. Mike Boudreaux said that his group did not have to make efforts to book condos because the condos were less costly than those in Florida. Another plus point was the annual inflow of tourists thanks to the casino culture. But after the catastrophic stork of 2005 August the sales figures were blown away by the winds.

Comparable Selection

Consideration of REO Sales Data

Appraisers sometimes dismiss sales and listings described as foreclosure properties in the local MLS as potential comparables. This market data could be dismissed when an appraiser deems that a sale identified by MLS as a foreclosure is not an arms-length transaction. However, any sales or listings that are noted in MLS as a foreclosure are actually
REO properties owned by a financial institution that are subject to the same market exposure as other non-REO, MLS listings.

REO properties may or may not be in a distressed condition, but if an REO property has been exposed to the open market, is representative of the type of property sold in the market area, or represents a significant percentage of sales and listing activity in the market area, it should be considered as a potential comparable.

LandSafe appraisers should be familiar with all terms used by real estate agents and brokers in their local MLS. Whether called an REO or foreclosure in the listing, the appraiser must determine the relevance of the market data by considering days on market, property condition, list price relative to competitive properties, price reductions and the level of motivation to sell an REO property.

Consideration of Short Sales Data

Sales called Short Sales or Pre-foreclosures could very well be less than arms-length transactions; however, their impact and contribution on market area trends should be analyzed and reported.

If Short Sales are a part of the subject market, details of these transactions must be researched and analyzed. The appraiser must determine if the property was exposed to the open market and sold in a manner similar to an arms-length transaction to determine if the sale should be considered as a potential comparable.

Foreclosure Activity

Although true foreclosures, typically recorded as a Trustee Deed, are not arms-length transactions, these transfers should be noted and briefly analyzed.

Foreclosure activity impacts the market because the property being foreclosed will ultimately be added to the real estate supply. The subsequent increase in overall residential supply will increase competition. If a large amount of bank-owned residential property is added to the market, the price and market value of all competitive property could be negatively impacted.

In addition, appraisers should become familiar with local delinquent mortgage and loan default rates, because the properties involved will also eventually increase the supply of real estate, and potentially impact market value for all residential property in the market.

If by analysis of factual data, one can establish that there are a large number of foreclosures in the market area that have not subsequently been marketed or sold (sometimes referred to as Shadow Inventory), the appraiser should consider the impact this may have on the market value of the subject property.

Source and Verification of Comparables

Please remember that comparables selected and presented in the appraisal must be independently verified by a disinterested source.

Guest Author: Matt Cook, Torrance, CA via appraisalscoop

A poster to the Inland California appraiser's forum posed an appraisal problem regarding distressed sales.

He stated that the market for a particular residential assignment included 88% "distressed sales of one kind or another" and thought that perhaps by dominating the market, the distressed sales would exert downward value pressure on all the properties in the market.

He was wondering if and how to include these distressed sales in his analysis?

My response was:

If the distressed sales are truly making the market, then two comparable homes--one a distressed sale and one not--should sell for the same amount. Unfortunately, there is not a monolithic "distressed market;" there are vast differences in seller motivation. That is the difficult but essential factor that must be analyzed.

When you separate out the price ranges of the REOs, short sales, and "typical" sales, what do you see? If the REOs and short sales are ALL "distressed" sales (implying below market), you should see that their value ranges will be below the 12% of typical owner sales. On the other hand, if you see that the upper price ranges of the REOs and short sales are similar to the price ranges of the typical sales, that MAY indicate that there are REOs and short sales that are not being affected by poor condition, atypical seller motivations, or fraud, and can be used in support of your analysis and conclusion of market value.

Good news! If the ranges are not similar, this may be the first step in allowing you to derive an adjustment for distressed sales that can be used in your sales comparison analysis. Here are some other suggestions for ferreting out sales from that 88% that can still be used.

REOs: Often, distressed sales--especially REOs--are in poorer condition than typical owner-occupied, owner-sold properties, so they would have lower average sales prices. Sometimes they are also "dumped" at below-market prices. If you can analyze the REO sales and first separate out the ones that were in good or typical condition, then analyze these to separate out the ones that seem to have been sold without undue duress, you may have some REO comparables you can legitimately use.

Some clues that the REO sales MAY be below market are shorter-than-typical marketing times, sales prices above list prices, and out-of-area selling agencies. Short marketing times may indicate a quick sale at a discount price; sales above list price may mean that the listing agent listed the property below market to begin with, and out-of-area listing agencies often handle all of a particular lender's REOs and may not know the local market, or be as available as a local agent to do the marketing, showings, etc. necessary to ensure getting the best possible price.

If you set aside the REO's with those characteristics, after weeding out the ones that were in poor condition, you may be left with a pool of REO sales that have the potential to be market-value sales. Investigate these to be sure; agent interviews are a must here. You may find some REO sales that were in typical condition, sold in normal marketing times by a knowledgeable local agent at a typical discount from list price, verified by both listing and selling agents as being a normally-valued sale. Viola, a comparable sale!

SHORT SALES: Short sales by definition are only short sales because their MARKET VALUE is less than the mortgage balance, so if they are selling at that market value, they should have sales prices similar to otherwise comparable homes. Unfortunately, short sales often involve protracted negotiation and settlement times that can translate into discounted sales prices, as the pool of buyers willing and able to endure the delays is smaller and likely differently motivated than the general pool of buyers. Also, there is a lot of short-sale fraud going on so you have to be very careful.

Start by setting aside the short sales with long times in escrow, or the ones that have been in and out of escrow several times. These conditions MAY reflect unreasonable, unrealistic, or difficult-to-deal-with lenders that will drive "typical" buyers away and result in below-market sales prices. Again, set aside the sales with out-of-area listing agencies for the reasons above. Investigate what you have left, and you may find that some of the sales were sold at market value. A short sale with a reasonable, responsive lender, normal listing history, and an experienced local agent who markets the property correctly can result in a good, market value sale despite its being a short sale.

Finally, take a close look at the "typical" market, the 12% that are not REOs and short sales. If they are priced differently than the 88%, what does it take to get one of them sold? That is, if the "distressed" sales are selling in normal marketing times for their market but the "typical" sales have extended marketing times, or are selling with seller financing, concessions, or other conditions made necessary in order for them to compete with the lower-priced "distressed" sales, then you may want to rethink whether they are truly "market-value" sales.

AUTHOR: Matt Cook, Torrance, CA

This Mortgagee Letter provides guidance on ordering Federal Housing Administration (FHA) case numbers and selecting FHA Roster appraisers in FHA Connection.

Specifically, this Mortgagee Letter:

informs mortgagees of changes to data entry requirements in FHA Connection;
permits mortgagees to obtain a case number in FHA Connection without first having to select an appraiser from the FHA Appraiser Roster and input the appraiser’s information in the Case Number Assignment screen; and,
requires that the effective date of the appraisal be after the case number assignment date except in certain limited circumstances.

Effective Date

Provisions in this Mortgagee Letter became effective for all case numbers assigned on or after February 15, 2010.

Case Number Assignment and Appraisal Logging Screen Changes

1. The Case Number Assignment screen in FHA Connection will no longer capture appraiser information (assignment choice, license ID and assignment date). However, the following information fields in the case number assignment screen will continue to require input:

General Information
“As Required” Fields (pertaining to streamline refinances, 203k loans and condo indicators, etc.)
ADP (automated data processing) Code Characteristics
Property Address 2
Compliance Inspection Fields (if applicable)
Borrower Information

2. The Appraisal Logging Screen in FHA Connection will capture the appraiser information along with the following information fields:

Appraiser’s License ID
Property Information
Neighborhood Information
Site Information
Physical Improvement Information
Reconciliation Information

Note: Mortgagees are required to input the appraiser’s information, as well as the relevant appraisal information, into FHA Connection prior to loan closing.

Appraiser/Appraisal Eligibility

Mortgagees are reminded to ensure that the FHA Roster appraiser selected to perform an appraisal is listed as being active on the FHA Appraiser Roster at the time of selection.
FHA Roster appraisers are reminded that appraisals cannot be performed for purposes of FHA insured financing unless the appraiser is listed as being active on the FHA Appraiser Roster during the time period in which the appraisal is performed.
Mortgages predicated upon appraisals that are performed by appraisers who are not current on the FHA Appraiser Roster at the time of the effective date of the appraisal will not be insured.
The case number assignment date cannot be prior to the effective date of the appraisal unless the lender certifies, via the certification field in the Appraiser Logging Screen in FHA Connection, the appraisal was ordered for conventional lending, HUD REO or government guaranteed loan purposes but was performed by a FHA Roster Appraiser and is being converted to a FHA-insured mortgage. The mortgagee must retain documentation in the case binder substantiating conversion of the mortgage to FHA.
If the appraisal was ordered for conventional lending or government guaranteed loan purposes but was performed by a FHA Roster Appraiser, the mortgagee must ensure that the appraisal was performed in accordance with FHA appraisal reporting requirements as detailed in Handbook 4150.2, CHG-1, Valuation Analysis for Home Mortgage Insurance for Single Family One – to Four – Unit Dwellings, and subsequent mortgagee letters. Ensuring compliance with this requirement may entail a re-inspection of the property by the appraiser.

To read mortgagee letters and any attachments in their entirety, please visit: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/ view the 2010 letters and click on the letter of your choice. Mortgagee Letters from previous years can be found on the same page

For FHA technical support regarding this Mortgagee Letter, please contact the FHA Resource Center at: info@fhaoutreach.com or phone FHA toll-free between 8:00 a.m. and 8:00 p.m. ET (5:00 a.m. to 5:00 p.m. PT) at: (800) CALLFHA or (800) 225-5342.

SOURCE: This is the HUD national homeownership center reference guide mailing list for real estate industry professionals that are interested in updates to HUD Mortgagee letters, notices and guidebooks, & FHA Housing Industry Training. Please visit our homepage at: http://www.hud.gov/offices/hsg/sfh/hsgsingle.cfm Servicing lenders can visit HUD's National Servicing Center at: http://www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm

via appraisalscoop.com

Retired Appraiser said...

3 types of residential appraisers created by HVCC:

*Those who bailed out of the business intact early on

*Those who were forced out through bankruptcy

*Those who will be forced into bankruptcy

Please note that this applies only to residential appraisers who have not chosen to diversify their business. If you are not diversified today and working as a full time residential appraiser you are likely surviving off of savings, you play golf with the local bank president, or your are surviving off of the support of friends and family.

No matter how you slice it...it's a dead end career. A real estate appraisers license today has far less value than a piece of used toilet paper.

Reply June 13, 2010 at 11:07 AM

TedWa said...

Call to Action!! The Consumer Protection bill they have and are going to be working on is a conglomeration of both bills (See: http://msnbcmedia.msn.com/i/CNBC/Sections/News_And_Analysis/_News/__EDIT%20Englewood%20Cliffs/BaseText.pdf). Barney Frank said that the whole thing does not stand as it is and could be wholly amended. The current copy they're working off of is the base they will work from. They are meeting next Tuesday to start voting on the final form of the bill and will meet for 6-7 days. Per the base copy, Title XIIII Subtitle E appears to be the one for mortage brokers and LO's and they might want to weigh in on it. Title XIIII Subtitle F is where appraisers need to weigh in on with their representatives. They are starting the final voting next Tuesday and will be voting title by title. If they go by the numbers they will have to vote in over 2 titles per day which would get our Subtitle up at or near the last day. But, we should pay attention to the meetings as we don't know when our concerns will come up and it will likely go fast, so we need to weigh in.

Call (866) 544-7573 to be connected to your Senators. The following link will take you to a page where you can find contact information for your particular State Representative. http://www.house.gov/house/MemberWWW_by_State.shtml or you can just call the Senate number and ask to be transferred to your state House member.

We need to lay it on thick with calls and e-mails to be sure we are heard and concerns addressed as our concerns are for the health of this nation and not for a continuation of bailouts. Fannie and Freddie must be dealt with and the HVCC must be exposed as the piece of chit it is.

As far as writing your representatives, these guys get thousands of e-mails a week. Time is running short. It's best to actually call them - actually, flood them with calls IMHO. Their assistants that answer are nice and write down your concerns to actually give to your representatives.

One more thing, when you call your Senators and House reps don't talk about how whatever your concerns are will hurt or is hurting your business, the only way they'll listen is if we talk about how it's hurting the consumers, ie... additional fees, lack of choices, higher costs, non-portability, costly AMC delays etc.. .
You might want to mention that although the HVCC was issued in part by an administrative agency of the federal government, it did not go through the Administrative Procedures Act (APA) or the Regulatory Flexibility Act (RFA) as required of rules issued by administrative agencies of the federal government - it's illegal as it stands with absolutely no consumer protection.

Thank you for your participation and action. If anyone cares about their profession they better pay attention and contact your states politicians. Time is running out because when the Consumer Protection bill is done it can't and won't be changed and it will be law. It will take years before it will be questioned again - maybe until there's another melt-down. This is your last chance to be heard and to defend your profession and your livelihood. Take this message to heart

Thank you;

Reply June 11, 2010 at 02:16 PM

HVCC = Bankruptcy said...

Link To View The Richest Members Of Congress

www.cnbc.com/id/33993791

I can assure you that they did not get wealthy by helping appraisers. Can you guess who they help?

Consequently this link was found in a CNBC article about a fat cat Senator who has no intention of voting for financial reform. Surprise surprise surprise!

Reply June 11, 2010 at 11:29 AM

Certifed Res said...

The four largest AMCs now control 80% of the lender business. Vitually all of the large mortgage lenders now channel their appraisal orders through AMCs. The fee structure for each AMC is what it is - take it or leave it.

Since 98% of the residential appraisal world is dependent upon lender work, we are forced to accept what the AMCs are willing to pay - take it or leave it. When we accept the lower fees out of necessity, the AMCs can claim that the low fees are customary for the area since 98% of the appraisers are now working for them. Its a Catch 22.

I know what my fees have been at various times in my 25 year carreer as an appraiser. I know that most AMCs are paying less than what was customary in my area 25 years ago despite the fact that more work is required today than ever to complete a respectable quality report.

I work in a complex market. I know what I was paid five years ago, prior to the AMC oligarchial system, and I know that it is unlikely that I will ever be able to attain a reasonable fee structure for quality appraisal work again. The experienced, educated appraisers who will do nothing less than high quality work are likely to continue to leave the business in droves once they figure out where to go from here.

Reply June 11, 2010 at 09:39 AM

Thoughts of R Scott Pierce Real Estate Appraiser

Foreclosures causing Prices to Tumble in Mississippi Gulf Coast

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