Adjustment for owner financing?

[saratogajockey]

Me again, an attorney who ordered a historic appraisal of a small (6-bay), independent auto repair shop. I recently received an appraisal of the shop for its value in 2013. The subject itself had sold in an arm's length sale in 2010, but my appraiser refused to consider that sale. The Seller had taken back a mortgage because the Buyer, a younger mechanic, could not get bank financing. I asked my appraiser to consider the subject's own selling price, with an adjustment for owner financing, but he said no such adjustment exists.

I am incredulous. The appraising profession seems to have adjustments for everything, including the number of bathrooms, but has no one ever developed an adjustment for seller financing?

Can anyone here give me a citation to an authority that suggests appropriate adjustments for owner financing? Thank you in advance.

 

[Meandering]

Me again, an attorney who ordered a historic appraisal of a small (6-bay), independent auto repair shop. I recently received an appraisal of the shop for its value in 2013. The subject itself had sold in an arm's length sale in 2010, but my appraiser refused to consider that sale. The Seller had taken back a mortgage because the Buyer, a younger mechanic, could not get bank financing. I asked my appraiser to consider the subject's own selling price, with an adjustment for owner financing, but he said no such adjustment exists.

I am incredulous. The appraising profession seems to have adjustments for everything, including the number of bathrooms, but has no one ever developed an adjustment for seller financing?

Can anyone here give me a citation to an authority that suggests appropriate adjustments for owner financing? Thank you in advance.

https://www.law.cornell.edu › definitions › index.php?height=800&def_id=1e2264141199e746d09d283e1b737c7c

Definition: Market value from 43 CFR § 2200.0-5 | LII / Legal ...​

Market value Market value means the most probable price in cash, or terms equivalent to cash, that lands or interests in lands should bring in a competitive and open market under all conditions requisite to a fair sale, where the buyer and seller each acts prudently and knowledgeably, and the price is not affected by undue influence.

Financing of the subject is not a point of it's value if it is put on the "open market".

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[PL1957]

https://www.law.cornell.edu › definitions › index.php?height=800&def_id=1e2264141199e746d09d283e1b737c7c

Definition: Market value from 43 CFR § 2200.0-5 | LII / Legal ...​

Market value Market value means the most probable price in cash, or terms equivalent to cash, that lands or interests in lands should bring in a competitive and open market under all conditions requisite to a fair sale, where the buyer and seller each acts prudently and knowledgeably, and the price is not affected by undue influence.

Financing of the subject is not a point of it's value if it is put on the "open market".

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That’s only true if the owner financing is at market levels. If the financing is favorable or unfavorable, a cash equivalency adjustment should be made.

 

[Meandering]

If it were a comp.

The OP was questioning the subject.

 

[PL1957]

If it were a comp.

The OP was questioning the subject.

Favorable or unfavorable owner financing affects sale price. The OP was asking the appraiser to consider the prior sale of the property as an indication of value - in other words, using the property as a comp for itself. In that case, IMO, an adjustment to the previous sale price would be appropriate.

 

[Overimprovement]

Would need more details on that sale. How long was it listed? How well was it advertised? What was typical DOM for similar properties in that time frame?

If it were on the market a long time, and owner financing was the only way to move it at all, then there may be some credence in not wanting use it as a comp.

The other issue is owner financing can take on a lot of flavors. Was it $500 down and basically a lease/purchase deal? Was it 25% down, with buyer getting the deed, and a regular recorded mortgage? And so on.

Not enough info here as yet.

 

[Meandering]

Favorable or unfavorable owner financing affects sale price. The OP was asking the appraiser to consider the prior sale of the property as an indication of value - in other words, using the property as a comp for itself. In that case, IMO, an adjustment to the previous sale price would be appropriate.

And, what does verification of the sale price in 2013 have to do with the "value" in 2013, other than perhaps to explain why the deed has a consideration different than the opinion of value?

Me again, an attorney who ordered a historic appraisal of a small (6-bay), independent auto repair shop. I recently received an appraisal of the shop for its value in 2013.

If the sale in 2013 was more or less than the value, the appraiser could state that reasoning in the reconciliation, but no adjustment to the subject's sale price is warranted.


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[glenn walker]

Me again, an attorney who ordered a historic appraisal of a small (6-bay), independent auto repair shop. I recently received an appraisal of the shop for its value in 2013. The subject itself had sold in an arm's length sale in 2010, but my appraiser refused to consider that sale. The Seller had taken back a mortgage because the Buyer, a younger mechanic, could not get bank financing. I asked my appraiser to consider the subject's own selling price, with an adjustment for owner financing, but he said no such adjustment exists.

I am incredulous. The appraising profession seems to have adjustments for everything, including the number of bathrooms, but has no one ever developed an adjustment for seller financing?

Can anyone here give me a citation to an authority that suggests appropriate adjustments for owner financing? Thank you in advance.

 

[glenn walker]

Quote: Can anyone here give me a citation to an authority that suggests appropriate adjustments for owner financing? Thank you in advance. Response" is No- Hire a expert witness in your market area to do an analysis or practice family law or something you have expertise in LMAO

 

[Overimprovement]

And, what does verification of the sale price in 2013 have to do with the "value" in 2013, other than perhaps to explain why the deed has a consideration different than the opinion of value?




If the sale in 2013 was more or less than the value, the appraiser could state that reasoning in the reconciliation, but no adjustment to the subject's sale price is warranted.


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The subject prior sale was 2010, not 2013. A retrospective valuation was provided for some time in 2013. In commercial, a 3 year sale may be very relevant, hence the OP's question I imagine. Even if not included in the SCA, there typically should be some in depth analysis of that prior sale, listing history, things like that. The problem with retros is memories get very fuzzy, and the stakeholders involved may not even be reachable, so it is really about hard data. Simply knowing that something was owner financing doesn't seem in depth enough though.