1. The Valuation of Foreclosed Properties (An oversimplication ) Prepared for: California Association of Clerks and Elections Officials New Law Workshop

2. Property Tax Rule 2 The price at which a property, if exposed for sale in the open market with a reasonable time for the seller to find a purchaser, would transfer for cash or its equivalent under prevailing market conditions, between parties who have knowledge of the uses to which the property may be put, both seeking to maximize their gains and neither being in a position to take advantage of the exigencies of the other.

3. Establishing roll value on residential properties  For Prop 8s, Assessed value = lesser of factored Prop 13 value and current market value  Market value is determined by sales of comparable properties (similar in location, age, size, condition, amenities, etc)

4. Market value Question: Can sales of distressed properties be used as comparable sales? Answer: Maybe, although this goes against traditional appraisal theory, as well as statutes in some states

5. Impact of Foreclosure Sales  Are the foreclosure sales affecting the sales prices of typical sales in the area?  Are the foreclosure sales the most commonly traded properties in a market area?

6. Recent Foreclosure Activity

7. Sales Following Foreclosures YearNumberPercentage 2004 1550.3% 2005 970.2% 2006 1,2580.4% 2007 7,74936.0% 2008 17,48558.0% 2009 4,38620.0%

8. Are distressed sales market sales?

10. Are these common?

11. Have foreclosures affected market value?  Yes. For properties selling in 2008 and 2009 especially, there is little or no difference between the sales prices of arms-length transactions and those coming out of foreclosure.  However, additional research is necessary.

12. Are the properties truly comparable? They may look like this on the outside…….

13. But they look like this on the inside

14. What do we compare?  Physical Attributes (size, quality, age, amenities)  Location  Condition (Incidence of vandalism, stripping)  Time on Market  Number and percentage of foreclosures

15. Questions?