Adjustment for owner financing?

[Meandering]

Awe come on man.
make adjustments to the subject for it's financing at the historic purchase, in an historic appraisal.

Did the new fannie forms incorporate a column for adjustments to the subject?????

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[Meandering]

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.

Again, the SUBJECT does not get ADJUSTED. The comps do.

A prior sale of the subject can be discussed in the reconciliation. But not adjusted on the grid.

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[Terrel L. Shields]

Owner financing that is not at market interest rates should be adjusted for Cash Equivalent Value. That applies only to the comparable sales.
Often owner financing as a second mortgage is at a higher interest rate because being a second mortgage is riskier than being a first mortgage.
So, say the buyer gets a conventional loan for 80% of the sale price and the owner carries 10% and the buyer puts down 10%. You need to calculate the additional cost of the owner financed part and adjust the price accordingly.

Cash Equivalency - Real Estate Math - Economic Theories

When a seller is willing to finance the sale of his or her property with a below-market rate of interest contract for deed or when the buyer assumes the

www.economictheories.org

 

[Meandering]

Just want to repeat this:

That applies only to the comparable sales.

Thank you.

 

[Ricky LaFleur]

The subject itself had sold in an arm's length sale in 2010, but my appraiser refused to consider that sale.

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.

If it were a comp.

Looks like if I had a subject that sold 3 years prior that could potentially be used as a comp, or at least some indication of value for the subject, then it would be prudent to at least consider the prior sale (do or don't include it in SCA grid). The prior sale appears to have owner financing so to use the prior sale, one would need to verify if the financing had any effect on CEV as @Overimprovement just said.

Again, the SUBJECT does not get ADJUSTED. The comps do.

If the subject's past sale is to be used as an additional comp, then you may still need to adjust this comp. If you're trying to communicate that you don't adjust the subject towards the comps, I'd agree.

 

[Meandering]

If the subject's past sale is to be used as an additional comp,

NOTHING from the OP says the subject was used as a comp, and in fact says;

my appraiser refused to consider that sale.

With sufficient sales current for the effective date of the appraisal, there is no NEED to use the prior sale of the subject as any additional comp.

So, with market changes (you know recovery of the residential market and "normalization" Yellen and all that) that took place between 2010 and 2013, why would you use a 3 year old sale, that would require not just financing adjustments, but also market condition adjustments, if you had sufficient current sales for the effective date??? Just to make a client happy? Well, that happiness requirement needed to be discussed prior to the engagement of the appraiser, as additional scope of the work. Not after the work is completed.

Do we not read about the, after the report is sent, change of the scope of the work, new requirements that always wind up with the same responses?? Pay more for the additional work, or order a new appraisal.



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[Ricky LaFleur]

With sufficient sales current for the effective date of the appraisal, there is no NEED to use the prior sale of the subject as any additional comp.

You started off arguing that "you cannot adjust the subject" to now saying that because of changing market conditions the subject's previous sale should not be considered.

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.

Yes, it might be that there were sufficient recent comparables to the effective date, but that wasn't the OP question. No, of course, the 3 year old sale doesn't have to be used if there are better sales available, but the OP asked if it could be considered, and the appraiser acted as though no such adjustment exists for CEV.

Maybe the OP was upset because they wanted this old sale to influence value in some direction. Or maybe the appraiser didn't get that adjustment update in the big book. Don't know. What I do know is it's 1am, and I'm arguing with myself on a work related forum.

 

[jay trotta]

You started off arguing that "you cannot adjust the subject" to now saying that because of changing market conditions the subject's previous sale should not be considered.


Yes, it might be that there were sufficient recent comparables to the effective date, but that wasn't the OP question. No, of course, the 3 year old sale doesn't have to be used if there are better sales available, but the OP asked if it could be considered, and the appraiser acted as though no such adjustment exists for CEV.

Maybe the OP was upset because they wanted this old sale to influence value in some direction. Or maybe the appraiser didn't get that adjustment update in the big book. Don't know. What I do know is it's 1am, and I'm arguing with myself on a work related forum.

Do you still get those Updates? Do you have a link.......

 

[Long Walk]

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.

Right on! The prior sale and listing history, and current listing status must be analyzed and a conclusion formed as to whether the prior sale is arm's-length. It is everyday work for me to confirm sales that are 2-5 years old, depending on what I am appraising.

To the OP's question, the only possible adjustment is cash equivalency based on the terms of the mortgage or confirmation interviews. Notes aren't recorded in the New England states, generally, and loan terms are rarely given in a mortgage here. And probably 10% of the sales I confirm are owner-financing. So, I have to rely on broker, buyer, or seller interviews to tell me whether the financing affected the sale price and, if so, by how much. Usually the participants don't know how much the effect was, so I have to dig around quickly with questions to sense how they framed the sale. A sure sign the financing affected the sale price is the order of negotiation. If the sale price was negotiated first and the financing was agreed to later for some reason, then it is unlikely the financing affected the sale price. If they were negotiated together or if the seller offered financing with the listing/offering, then the only discussion is how big the adjustment will be. Interviews are indispensable in this process.

Edit to add: I just saw @Terrell's post above about seller-held 2nd's. Those aren't common at all in my market area. My comments above apply only to seller-held 1st position mortgages.