Property Valuation
A comparable sale that is an REO (Real Estate Owned / bank foreclosure) sale may require an adjustment because:
AREO sales always sell for more than market value
BREO sales may sell at a discount and may not represent arm's-length market value✓ Correct
CREO sales are not permitted as comparables
DREO sales require AREC approval to use as comparables
Explanation
REO sales may not represent arm's-length market transactions because the bank-seller may not be acting like a typical motivated seller, potentially resulting in prices below market value.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Listing AgreementA contract between a property owner and a real estate broker that authorizes the broker to market and sell the property.
State-Specific Concepts
AREC Regulation
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