Determining value
Stalling that growth, however, is the appraisal values of Detroit real estate. The market has been based on rock-bottom foreclosure sales for the past seven years, so it’s hard for appraisers to know how to value a property.
“In Detroit, 90 percent of a property’s assessed value is based on comparable sales,” Boudreau said.
So even if a home is exquisitely renovated, a gem of a property, it still will only be valued against what has sold recently nearby.
“I sold a house in the University District last year,” said Austin Black II of City Living Detroit, a Detroit-based real estate firm. “It had brand-new windows, roof, completely done on the inside, new bathroom. It goes on the market for $189,000.
“The first lender we went with got it appraised for $120,000.”
Eventually, the sellers worked with another lender and got a better valuation, but there isn’t always a happy ending.
There is hope that the Land Bank auctions will help create a bottom for the market — showing what people are willing to pay for unrenovated homes — and push up appraisals.
“The auctions give a little bit of validity to the market,” said Boudreau, whose company has appraisers in 35 states and values 6,000 properties a month. “That will help everyone else out. Plus it gets one more publicly owned property off the market. It’s definitely going to help.”
Whether the auctions will have an immediate impact on appraisal values is uncertain because the homes aren’t listed through Real-Comp, Michigan’s official Multiple Listing Service.
“I don’t see it impacting the valuation market,” said Ryan Cooley, owner of Detroit-based O’Connor Real Estate. “More than anything, where I do see it making a difference is getting these abandoned houses activated. Many times people don’t want to buy when there is an abandon home next to them.”
Boudreau agrees but said smart appraisers will use the auctions to help establish values.
“Your regular Joe appraiser isn’t going to use these,” he said. “Technically, the appraiser has to know what’s going on in the public market. If he is a good appraiser and an expert in the market, he should know about auctions and ascertain whether the price is an outlier or a price that is indicative of what is happening in the market.”
Still, such little inventory remains on the market as foreclosures dry up — filings fell 61 percent since this time last year, according to RealtyTrac — that Cooley and Black are sending some clients to the auctions.
“People are doing it; they are exploring it,” Cooley said. “There has been some mixed reaction. Some people are ready to take on a rehab; some people think they are ready to take on a rehab.”
Boudreau’s brother-in-law considered bidding on a property in the Woodbridge neighborhood that eventually sold for $87,100. In the end, he wasn’t comfortable with the level of risk that the auctions brought.
“They were too nervous about the amount of repairs,” Boudreau said. “They have the cash, but they didn’t know if it was $20,000 or if it was $50,000.”