By Steve Krasnow

Inspecting a foreclosed property to determine its value isn't always an option - especially when an adversarial relationship exists between the homeowner and lender or when the house is being sold "as is" at auction.

And, even getting near a foreclosed property can be difficult and sometimes dangerous. As a professional appraiser, I routinely receive appraisal orders from the bank that read, "front or street photo only - do not step on property." Yikes!

However, in order to make an offer to a distressed seller or on a property at auction, you must know its value - otherwise you can lose money big time. Many new investors mistakenly think only the dwelling and its condition matters. Experienced investors, however, consider the dwelling, the neighborhood, and "comps" - meaning, what other properties of similar value have sold for.

Friendly versus non-friendly foreclosures

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Viewing a foreclosed property that has yet to go to auction is obviously based on current conditions - namely, is the seller friendly or not? For individual investors, it can be very difficult to get inside a property since you're not affiliated with a bank or real estate agent. If you can't safely get access to the property, then I recommend you call the bank to see if they've done an appraisal.

If, on the other hand, it's a "friendly" foreclosure or the "motivated to sell" owner is working with a real estate agent, you can either ask to tour the property or hire a professional appraiser to do it for you.

A quick note: Don't confuse an appraisal with a home inspection. Appraisers determine a property's value - sometimes without stepping foot inside the dwelling. Home inspectors, on the other hand, go over the property with a fine-tooth comb and note everything from termites to the 20-year old furnace that hasn't been cleaned in three years.

Determining a property's value takes practice and experience. If you're just starting out, you'll want to keep the following strategies in mind:

1. Start with the field card from the assessor's office - A field card lists the basic facts about a property based on when the assessor last inspected it. On it you'll find the number of bedrooms, bathrooms, above ground square footage, and the general condition of the property. The field card may also list upgrades - i.e. a new kitchen was installed.

2. Study the exterior condition - Before making an exterior appraisal, you'll want to make a grid of the elements outlined below and then note any problems. You'll use this grid to help determine the property's value. Even if you can't get on the property, you can still glean clues to its condition by carefully evaluating the following:

   • General maintenance - Does the property look well-cared for or is it in a general state of disrepair? Does it have broken windows or missing siding? Is the chimney whole and in good repair or is it missing bricks? Is the front walk or driveway filled with cracks and/or broken cement or asphalt?

   • Foundation - What is the foundation type - fieldstone or cement? Can you see cracks? Do the owners have a hose running from the cellar to the yard due to poor water drainage? Is the entire house on a good foundation or have additions been built on cement blocks?

   • Roof - Look for curling, blackened, or missing shingles. In really bad cases, the roof can be covered in moss - a sure indication you'll be adding a new roof pronto should you purchase the property! Also look for broken or cracked flashing around skylights, vents, the chimney, and eaves.

   • Landscaping - Last but not least, look at the yard. Is it filled with junk cars and overgrown weeds and ivy? Even if it's not perfectly manicured, can you tell the owners at least mowed the lawn and kept the yard free of debris and litter? How does the yard look in comparison to its neighbors?

3. Analyze the street and neighborhood - Depending on why you're buying the property (i.e. to flip or rent out), you'll want to consider it from your prospective buyers' or renters' perspective. Again, using your grid, note items that can dramatically lower value:
   • What is the condition of neighboring properties? Are they vacant or run-down?
   • Is the property located on a quiet street or a busy street? What are the traffic patterns?
   • Does the street or neighborhood have sidewalks or designated walking paths?
   • Is the property within walking distance of public transportation? How long will it take to drive to the highway?
   • Is off-street parking available?
   • What schools are located in the neighborhood and how are they doing in terms of MCAS scores?
   • What is the neighborhood like? Does it have a reputation for crime or is it family friendly?

4. Find your "comps" - Comps, or sales comparables, are considered by many real estate professionals to be the best way to determine a property's value. Using criteria from at least three properties that have sold in the last six months and that are within one mile of the subject, you compare how the property under consideration stacks up with regard to size, age, and utility. You can get comp info by searching:

   • Public records - You can find information about properties from either the town assessor or the county's Registry of Deeds. Simply go to the town hall or registry in which the property is located and look at what it sold for. Many Massachusetts assessor offices are online, as are most of the Registries of Deeds.

   • Newspaper listings - Most local papers list what properties have sold in the last month. You could then track specific properties and neighborhoods using your own database.

   • Zillow.com - Zillow's site states it offers comps but because their database isn't 100% complete, it doesn't always tell you what a home sold for.

   • MLS - The Multiple Listing Service is the best online subscription-based tool for getting instant up-to-date real estate data.

   • Local real estate agents - A prime source of information on what's selling and for how much, real estate agents have access to the MLS database and may already have comps on file.

If you are able to view the inside of the property, you'll want to compare the assessor's field card to the present conditions. Do the number of bedrooms and bathrooms you see agree with what's listed on the field card? Has the owner switched from oil to gas? You'll also want to look for potentially serious problems such as water leakage or a cracked foundation.

Once you have information about the property in hand, you can then determine its value. You may decide the property is no longer worth your consideration or that you've discovered a real gem. In any case, you'll be much better off than if you were to make a blind offer.

Steve Krasnow is a Massachusetts Certified Residential Appraiser and is managing partner of APCO, The Appraisal Company, in Watertown, MA. He can be reached at 617-393-4234 or by email at skrasnow@apcoappraisals.com.

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