Distressed comps

Abstract

We consider the use and impact of distressed properties as comparables in residential appraisals. First, we describe the incidence of their use and their relative comparability; second, we estimate their impact on the appraisal value itself; and third, we consider their impact on the probability that the appraisal is below the proposed transaction price. We find, generally, that distressed comps are largely good matches to their subject properties, which suggests that they are not necessarily used as a last resort. We find that they are not a drag on appraised value because appraisers learn to make the right adjustments over time. The use of distressed comps is associated with a higher probability of a belowprice appraisal due to the increased spread of appraisals around the contract price, particularly for higher priced homes. Overall, the use of distressed comps increased the uncertainty in the valuation process, but appraisers learned the appropriate adjustments over time. INTRODUCTIONAccurate appraisals are important to the transfer of property. Real property, such as single-family homes, are traded infrequently, and given the heterogeneity of each unit (as embodied in the property's unique set of characteristics), no immediate evaluation is available, as there would be for more homogeneous products. Appraisals are particularly important to the suppliers of mortgage credit. Without credit, most homebuyers would not be able to finance or refinance a home purchase, but the lender's underwriting standards generally require that an independent appraisal be performed, and this appraisal is crucial to the extension of credit to the purchaser. To obtain

Bargain or Bust? Prices, Discounts, and Returns in the Market for Real Estate Foreclosures

“…Recent work has tried to move in the direction of estimating the causal impact of foreclosures. Conklin, Coulson, and Diop (2023), for example, argue that the large discounts reported in other studies are likely due to omitted variable bias in the (mostly) hedonic estimates. Using a novel approach and a comprehensive data set for the entire United States, they find only a small -and thus economically negligible -foreclosure discount of 5%.…”

“…Using a comprehensive and verified administrative data set that covers four decades of housing transactions in Berlin, we estimate the foreclosure discounts in the urban context of a global city. This relates to both the traditional literature that uses hedonic frameworks to estimate foreclosure discounts (e.g., Shilling, Benjamin, and Sirmans 1990;Forgey, Rutherford, and VanBuskirk 1994;Hardin and Wolverton 1996;Springer 1996;Carroll, Clauretie, and Neill 1997) and the more recent papers that apply other methods or more representative data sets (e.g., Clauretie and Daneshvary 2009;Campbell, Giglio, and Pathak 2011;Donner, Song, and Wilhelmsson 2016;Donner 2017;Biswas, Fout, and Pennington-Cross 2023;Conklin, Coulson, and Diop 2023).…”