Arm's Length Sale?

[Philly19130]

I am appraising a property located in Philadelphia. The home is new construction built on land acquired by the builder from the Philadelphia Land Bank. In order to obtain the parcel the builder agreed to the following; the property must be sold at $250,000 and must be sold to a purchaser who meets income restricted guidelines(related to median income). In addition, there is a deed retriction that is in place which gives first right of refusal to purchase the property from the prospective buyer for 15 years. Should the Land Bank refuse to purchase the property the future owner will be responsible for paying a fee or penalty to the land bank if they do sell within that 15 year window. Exactly what that fee/penalty is has not been disclosed to me. I noted this transaction in my report as a non arm's length transaction. Am I correct is stating this? The underwriter is stating it is an arm's length sale and requiring the report be changed. Thanks in advance for your advise.

 

[Hondo]

There are several threads on the Forum about income restricted property, here is a recent thread:

Search results for query: income restricted

appraisersforum.com

If you need more info try the search feature for income restricted.

 

[Tom D]

this is an arm's length transaction. most of these new homes were built in the city's poorer areas by cdc groups with similar restrictions. it cost more to build them, feds payed the difference, than what they sold for based on the area sold values, which the listing price was based on. you got a very nice new home in a sometimes scary area. this has been going on in the city for a very long time, to try to help an area get better. after a while you will recognize these home, they don't necessarily match the surrounding brick homes. the underwriter is correct.

 

[Philly19130]

forgive my ignorance but if the seller is restricted in whom he can sell to and at what price he can actually sell is he acting in his own best interest? similar to the buyer, they are now burdened with a 15 year deed restriction, are they acting in their own best interest? My understanding of arm's length has always been two unrelated parties acting in their own best interest. my question is not about how to appraise income restricted homes, it is specifically about arm's lenght vs non arm's length

 

[Dublin ohio]

forgive my ignorance but if the seller is restricted in whom he can sell to and at what price he can actually sell is he acting in his own best interest? similar to the buyer, they are now burdened with a 15 year deed restriction, are they acting in their own best interest? My understanding of arm's length has always been two unrelated parties acting in their own best interest. my question is not about how to appraise income restricted homes, it is specifically about arm's lenght vs non arm's length

There is no relationship between the seller and buyer. Other than the transaction. Don't assume the seller is not acting in their "best interest". These types of deals between builders and municipalities have "conditions" that you you are probably not aware of. Tax abatements, grants. As far as the buyer is concerned. They may be saddled with a 15 year deed restriction. But are getting a higher priced home for much less.

 

[Tom D]

philly, stop the arguing, you are wrong. they are getting a $350,000 for $250,000 price brand new. look around the neighborhood and you might not see even a c3 home.
if they wait long enough they will get the most money for that house in the area, good deal. let me repeat again from my many years in the same city. it is an arm's length transaction.
are you sure you understand what the buyer is getting in terms of a new house. but beat your horse to death, you will lose in a review, and then the client to.

 

[glenn walker]

"Arms Length" and be done

 

[djd09]

non arm...tell the underwriter to write their own report and they can make it an arms length

 

[Philly19130]

Tom D, It's interesting you know so much about the house and the market without knowing what property I appraised. I asked a question/advice regarding arm's length and how everyone views this and haven't argued at all. I appreciate the input from everyone and am trying to get as much information as possible. For your information they are not getting a $350,000 house, the market(Grays Ferry) has dozens of sales within 2-3 blocks of c1 and c2 within 10k of the set sale price. Just because a builder says they are selling a house "below market rate" doesn't mean the market supports a vastly higher price. The subject is a 2 bedroom row offering 896 GLA. Not a single sale to support a $350,000 value. Not to mention no builders in the city are building 2 bedroom rows because the market doesn't want them, people want 3+ bedrooms in new builds, but Im sure you know that from your experince in Philly. DJD09, you have been the only one to say non arms length. Can you tell me why you agree?

 

[Philly19130]

non arm...tell the underwriter to write their own report and they can make it an arms length

Can you please clarify why you agree? Thanks