Are Foreclosures Considered when Using Comparables for an Appraisal?

The appraisal process on a home is highly important for Omaha buyers that are making a home purchase with the help of a mortgage loan. A lender will require a professional appraisal to be conducted on a property before they will approve a mortgage loan and release purchasing funds. This is because they want to make sure they are not lending out more money than a property is worth. 

There are many deciding factors and attributes of a property that go into a professional appraiser's final valuation of a property. One of these is using comparables or comps. 

What is a Comparable in a Real Estate Appraisal?

The process of finding comparables or "comps" is the practice of looking at other properties that have recently sold in the same area where the property in question is located. These properties will have similar sizes and floorplans as well as other factors as the property being evaluated. This helps an appraiser in their determination of the value of the property. They compare the home to similar homes in the area recently sold to give them an idea of what people are willing to pay. 

Can an Appraiser Use a Foreclosed Property as a Comp?

It is a well-known fact that a foreclosure property sells for less money than a home sold through the most traditional way by an owner in good financial standing that has taken good care of the home. To some buyers and sellers, it may seem unfair that an appraiser would use a foreclosure property as a comparison to find the value of a home being sold in good standing. 

However, an appraiser can and sometimes will use a foreclosed property as a comparable when appraising a home. It is good to note though that the appraiser will take the fact the home was foreclosed or distressed into consideration and adjust for the factors of the property they are assessing as being in better condition. 

Appraisers are able to use foreclosures as comps under the Home Valuation Code of Conduct created by the Federal Housing Financing Agency. This code does not require that appraisers use foreclosed properties but it does not prohibit them from using them either. If the area a property is located has a large amount of foreclosure sales this may be a reason an appraiser might choose one as a comparable. But it could possibly have an impact on a low appraisal.

What can you do if you feel an appraisal is low?

The good news about appraisals is that a homeowner or home buyer is within their right to question the final results. If you feel a professional appraiser has valued the Omaha home you are selling or buying lower than it is truly worth there are ways to question the appraisal. You can provide factors that lead you to believe the home should be valued for more money. Or you could hire another professional appraiser on your own to give a second opinion. If you feel you should question the appraisal it is always good to talk this over with your trusted real estate agent.

For more information on buying or selling a home in Omaha Nebraska and surrounding areas please contact us anytime.