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Anyone know what "contract" financing means?

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chicago guy

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Jan 29, 2008
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Certified Residential Appraiser
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Illinois
I am appraising a property and what appears to be one of the best comps has "Contract" in the financing section. I have never seen this and am not sure what it means. My first guess is that it is some sort of seller financing but am not sure. If it is seller financing is it still considered a closed sale? MLS has it as closed. Nothing recorded with assessor but that is typical as it is a recent sale and properties usually take about 3 months to hit county records. Any help would be appreciated. Listing agent hasn't returned my calls.
 

Jerry Bone Jr

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Feb 23, 2004
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Oregon
"Contract" is typically "land sales contract" or "seller contract". A professional appraiser will find out the specifics.
 

Thomas Fiehler

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Jun 2, 2003
Professional Status
Certified General Appraiser
State
Ohio
I suggest having someone you know call the listing Realtor and leave a vague message like "I would like some information on a house you have listed". When they call back then try to get the data. I've always had good luck with leaving vague messages!
 

leelansford

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Mar 29, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
I am appraising a property and what appears to be one of the best comps has "Contract" in the financing section. I have never seen this and am not sure what it means. My first guess is that it is some sort of seller financing but am not sure. If it is seller financing is it still considered a closed sale? MLS has it as closed. Nothing recorded with assessor but that is typical as it is a recent sale and properties usually take about 3 months to hit county records. Any help would be appreciated. Listing agent hasn't returned my calls.

Just out of curiosity, in which county is the property located? I ask because I have not experienced such a long lag time between closing (and, assuming that the deed is quickly recorded) and the recording be available to me.

As to "contract": It might be "contract for deed" and title does not pass to the buyer. If it is contract for deed, you must have awareness of the terms because it is highly likely that the terms are better than the market (and, hence, requiring an adjustment).

Suggestion: find a substitute sold comparison for use in your appraisal.
 

EDWARD BERRY

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Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Here In Arkansas A Sales On Contract(contract For Deed) Is Just That.
Usually A Deed Is Made But Not Recorded But Is Held By An Escrow Agent(if You Now Can Find One).

To Protect The Buyer, They Can File A "memorandum Of Contract" Which Usually Prevents Any Additional Bank Loans On The Property. It Does Not Protect From Irs Leins Or Others (say An Accident Judgement)

We Call It A Poor Man's Foreclosure Devise Because Of Non Pay, The Seller Just Tears Up The Deed And Evicts.

Used To Be Very Poplar. Has Danger For Both Parties-but Without Much Money What Can One Do. The Seller Get A Good Interest Rate.

Arkie Ed
 

chicago guy

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Junior Member
Joined
Jan 29, 2008
Professional Status
Certified Residential Appraiser
State
Illinois
Just out of curiosity, in which county is the property located? I ask because I have not experienced such a long lag time between closing (and, assuming that the deed is quickly recorded) and the recording be available to me.


Suggestion: find a substitute sold comparison for use in your appraisal.

Will County. I do most of my work in Cook were 3 months isn't unusual.
Seems you are right about finding other comps. Other sales closed after this comp and have been recorded in Will. There is nothing with assessor but is some type of agreement with recorder of deeds on this property. Plus the fact that agent not returning calls and listing office number no longer in service makes me believe not a typical transaction.
Thanks for input.
 

Mike Boyd

Elite Member
Joined
Jan 18, 2002
Professional Status
Retired Appraiser
State
California
Will County. I do most of my work in Cook were 3 months isn't unusual.
Seems you are right about finding other comps. Other sales closed after this comp and have been recorded in Will. There is nothing with assessor but is some type of agreement with recorder of deeds on this property. Plus the fact that agent not returning calls and listing office number no longer in service makes me believe not a typical transaction.
Thanks for input.

Contact the SELLING agent, the owner or the buyer. Get the escrow number and name of the escrow officer. Call her/him and confirm whatever you can. It might not be a good comp because of the terms but you should use it anyway as an additional comp...and explain.
 

Pat Butler

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Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Illinois
Hope it's not one of my properties :)

I do a lot of these here in ILL. Basically, there can be all sorts of variations on how to pull these together. The contract itself is rarely recorded. Typically, some sort of memorandum of contract is recorded in order to have actual notice. Otherwise, the buyer really has less protection because a title company won't even be aware of his or her interest in the property. Verification becomes very difficult.

The way I do them is agree upon a selling price then structure the terms with a balloon payment in the future- usually around 5-7 years. The sales price is based upon today's value with the expectation that the monthly payments are what compensates for the delayed closing in the future.

We usually have an initial closing with title insurance and another closing in the future. It does represent a 'sale' per say, but it's not as clean cut as a typical sale where the deed is executed at one closing. So it can be used as a comparable, but rarely is it a good comparable and the terms of sale really need to be considered.

I've purchased some properties at a low price, and yet with a higher than market interest rate. The seller might consider that to be a good investment based upon getting a higher than market yield on his equity. Yet, I might be basing the terms of the transaction on the expectation of flipping the property during the first year. So I'm not concerned about making payments for a short period of time at a high interest rate because there will be so few payments. If you were to analyze that sort of transaction then you might miss out that I paid less than market value for the property in exchange for a higher interest rate.

On the other hand, I've sold properties to tenants whereby they've agreed to a high sales price in exchange for favorable terms that result in monthly payments similar to what they were paying me for rent. I structure the balloon payment far enough out in the future so that they'll have at least 10% equity prior to buying me out. I also know in the back of my mind that I'll extend that ballon payment until they can buy me out. Again, if you were to look at the sales price you might be influenced by the high price if you didn't otherwise know the favorable monthly terms. These transactions are very difficult to adjust out to a cash equivalent amount without knowing all the confidential details.
 
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