All Forum Posts by: Denise Evans

Josiah, there is no way to tell without more information. Ask your real estate agent for comps supporting his/her $115,000 value. Ask for recent sales in the area (because different submarkets have wildly different appraisals for the same house) and currently listed properties on MLS that are comparable. Those properties will compete against yours, when yours is listed. If comparable sales in the last year were $115,000, but there are five properties almost identical to yours, in the same neighborhood, listed on MLS for $100,000, then your value is some place south of $100,000. This might be because of a recent downsizing by a large local employer, controversy over tainted water, or recent violence in the neighborhood panicking homeowners into selling. So, get the data from the agent, and then evaluate it. I'm not saying this is the case with your agent, BUT it is a not uncommon practice for agents to over-value properties in order to get listings. Then, over time, the owner gets discouraged, reduces the price, and the property eventually sells for its real market value.

State law in Alabama requires that 25% of all county properties be re-appraised every four years. There is simply not enough manpower to do that. As a result, the counties rely on artificial intelligence software to calculate the appraised values. Often, they are wildly wrong. If the tax appraisal is too high, the property owner protests and gets it corrected. If the tax appraisal is too low, the local government doesn't get the full amount of taxes they could, but when compared to the manpower costs to get accurate appraisals, it doesn't matter.  If a tax appraisal is too low by $50,000, and if the property is owner occupied residential property, then it is assessed at 10% of its tax appraised value.  The taxes might be around 5.5% of the assessed value. So, tax appraisal wrong by $50,000 makes the tax assessment wrong by $5,000, makes the tax bill too low by $275.  It's just not enough money for the county to stress over.

As far as appraisals, the appraiser is allowed to used foreclosures and short sales as comparables if the market is primarily foreclosures and short sales. Here is an excerpt from Fannie Mae rules regarding appraisals and foreclosures: 

It is acceptable to use foreclosures and short sales as comparables if the appraiser believes they are the best and most appropriate sales available. The appraiser must address in the appraisal report the prevalence of such sales in the subject's neighborhood and the impact, if any, of such sales. The appraiser must identify and consider any differences from the subject property, such as the condition of the property and whether any stigma has been associated with it. The appraiser cannot assume it is equal to the subject property. For example, a foreclosure or short sale property may be in worse condition when compared to the subject property, especially if the subject property is new construction or was recently renovated. For appraisals that are required to be UAD compliant, the appraiser must identify the sale type as REO sale or Short sale, as appropriate. (For specific information regarding comparable sale adjustments, see B4-1.3-09, Adjustments to Comparable Sales, and for information regarding financing types, see Fannie Mae and Freddie Mac Uniform Appraisal Dataset Specification, Appendix D: Field-Specific Standardization Requirements). "

@Gabriel Welch

The classes and books and videos are on my website.

You have to research Alabama in particular, because it is very different from other states. When you purchase at the auction, you buy the tax lien, but you are also entitled to immediate possession. You can fix the property up (if needed), rent it out, and keep the rent money even if the owner redeems. Plus, they have to pay you for the VALUE (not the cost) of the preservation improvements. That is, the before-and-after difference in value of the property because of your preservation improvements. After 3 years, you receive a true tax deed. The money-raising strategy comes from buying properties from the State inventory that did not sell at the annual auctions.  You can buy for as little as $1,000, with a redemption price of many thousands of dollars, without having to make any preservation improvements.  I have classes, videos, and a book on this topic if you are interested.

Gabriel, you might want to check into Alabama tax sale properties. They can be purchased for VERY little cash. In the range of $1,000 to $2,000. With the right strategy, they will almost certainly get redeemed rather quickly, generate far more than the statutory 12% interest, and cost you absolutely nothing in rehab expenses. After you do a couple of those, you will have the equity you need to target rehab-and-keep tax sale properties, or the equity for a more traditional real estate purchase.

Do not rely on Zillow. Research the property records to find mortgages. Unless a mortgage is more than ten years old, the principal balance will not have reduced by very much.

If a property is correctly listed as a short sale, but the 1st mortgage balance is less than the list price, then a 2nd mortgage is causing the problem.

Call the listing agent to see if they will give you more information that will yield some insights. If not, then talk to some other agents who work in that same price range and area of town. I guarantee you, most of them know the story behind that property.

Then, get back in touch with me.

@Vicky S., I usually worked on properties with loans in the range of $375K to $1.2MM.  Properties in the $375K to 600K range were considered McMansions in this market, and those up to $1.2MM were considered luxury properties. I tell you that so you can compare to your own market. Generally, the banks were more flexible with luxury properties because that market always recovers more slowly than starter homes or McMansions.

Years ago, when I worked on larger commercial transactions, I saw the same relationship. The larger the loan, the larger the discount.  Probably because the fear of a mistake is also larger.

In your situation, you said the first mortgage balance is 20% less than the list price. Why do you think this would be a short sale opportunity? Is the list price any place near the market value? Is there a second mortgage that is perhaps preventing a deal at a reasonable price?

Hardships can be a variety of reasons that people would normally not consider hardships. For example, on Fannie/Freddie loans, an acceptable "other" hardship (besides the check box ones on the form) includes "property or borrower's employer located in an area that has suffered a federally declared disaster."  Baldwin County, Alabama, (the beach area) has had 7 federally declared disasters since 2007.  People finally couldn't keep trying any longer. On every single short sale where that was the only hardship I could demonstrate, every one got approved. That's on short sales dating from 2009 through 2014.  My advice--carefully review those hardship reasons to see if one might apply.

Hi @Scott Steffek, sometimes you just don't know all the facts and hidden agendas. Rather than waste time and emotional energy on that type of deal, move on. It's kind of like that romantic relationship that seemed perfect but just fizzled out.  You'll make yourself crazy wondering why.  Usually, there is no lesson to be learned, it's just something irrational about that situation, or an outside factor (such as another love interest) that you know nothing about and can do nothing to fix.

Don't forget about things like licenses, rental taxes, legal and accounting. Also, even if you never have vacancies, you need to include a vacancy and credit loss factor. A property might be vacant for one week out of the year when you turn tenants, for example. A tenant might move out owing you money, creating a credit loss. You should also calculate a reserve for capital expenditures.  If you will need new appliances, or hvac units, or carpeting in a certain number  of years, you should put a certain amount of your cash flow in a savings account or "sinking fund" each month so you will have the cash when you want to make those purchases.  This is not an expense of the property, but it is a cash flow deduction.