Non-Arm's Length Transaction Adjustment

[EVAUSA]

It's the 5th comp, I dont see a problem if the other FOUR were pretty good. But I'd be curious where the adjustment came from, let me guess, aw yes atmospheric ext ration! I used a Short Sale today as a 5th comp and adjusted for "Terms of Sale". The lender 1099'd the owner $75K, the difference between the sales price and the loan amount. One could argue it was a distressed sale and I shouldn't' have used it, but I did, and it worked out nicely once I found out WHY it sold so low.

 

[KD247]

... would be to leave it without a PFA adjustment and merely state that it represents the lower range of value ...

Best idea. From my point of view, the adjusted values of the sales should indirectly reflect the variance of that particular market. When all nine comparable sales have adjusted values of exactly $2,225,000 I know that something is wrong.

That said, I also think that adjusting for the "family discount" is a very efficient way to explain why an obvious comparable sale has such a low sales price. The omission of that sale or leaving the price unadjusted would have probably brought a question from the underwriter.

 

[Non Sequitur]

Comps 3,4,5, etc... can be almost anything you want,(according to Fannie, at least)

Cite please.

 

[Lawrence R.]

Ugh. lemme rephrase.

I shouldn't have used the word "comps" What I was trying to say was that you can grid out a moped as long as it isn't the first 3 comps on your appraisal. As you know, NS, you must include a minimum of 3 closed, settled sales. I got caught using a lay term intermixed in a specific discussion.

They wouldn't be comps, as they weren't closed. But you could include basically anything you want to include on a gird if you feel it isn't misleading....AFTER you have 3 closed sales.

sorry for the unclear post. Hope this clears up any ambiguity. If not, just correct me below.

 

[CANative]

It seems like I almost always agree with KD's posts and opinions.

If the sales wasn't listed in MLS and there was no agent how did the original reports author know about this sale and how did he/she know that it was a private sale between family members. Was it an assumption because public records showed the same last name between seller and buyer?

 

[Stone]

I would hesitate to use it. If I did it would likely be without adjustment and for discussion purposes, only. I probably wouldn't include it in the sales grid.

That said, assuming the appraisers spoke with at least one of the parties (preferably both) there might be some reasoning for including it along with the adjustment. Perhaps the parties had an appraisal performed as part of their negotiations. In that case, they might have agreed to sell it at about 5% less to reflect the absence of realtor fees. I deal with a lot of privately negotiated transfers (not between family members) that I use. This is frequently how land tracts are transferred in my area, although the realtor fee isn't typically removed by the parties. But private transactions without professionals involved beyond a possible appraisal are quite common.

I'm not saying that happened, but it could have. If it is the case, then all of that should have been explained, clearly, in the report. If there was some other reason to use it, and to make that adjustment, that should have been explained clearly.

And, again, I would be very hesitant to use it. I'm just wondering if there is more to it than the appraiser explained in the report (the appraiser's problem).

 

[Lee Lansford]

I may have the answer!

... The appraiser made an adjustment of $25,000 on a $440,00 sale for "for the private transaction and the 5+ percent below fair market value." My supervisor says this is ok appraisal practise. I have a real problem.

Any comments or suggestions?

Find another Supervisor Appraiser?

 

[PropertyEconomics]

With the information provided, there is no way to tell if its use is justified or not. Merely because its a non-arms length transaction doesnt make it any more or any less of a market sale, it just wasnt exposed to the market in the traditional sense.
We have no idea how the sale was adjusted or the analysis that was undertaken. Without knowing those things, we cannot say if its bad practice or not.

 

[CURT VAN HOOSER]

With the information provided, there is no way to tell if its use is justified or not. Merely because its a non-arms length transaction doesnt make it any more or any less of a market sale, it just wasnt exposed to the market in the traditional sense.
We have no idea how the sale was adjusted or the analysis that was undertaken. Without knowing those things, we cannot say if its bad practice or not.

PE,

How do you get around the sale not being exposed in the open market?

 

[KD247]

I would hesitate to use it.... .

I tend to look at data selection as a beauty contest. Anyone can be a winner - it just depends who you're competing against.

When you start by ranking the relevance of each piece of sales data, it quickly becomes evident whether a particular sale should be included or not. A tie is usually resolved by using either both contenders or neither one, typically depending on whether you're looking to fill slots #3 & #4 or slots #10 & #11.