Can an appraisal use a land contract sale as a comparable?

[Michael Shane]

Can an appraisal use a land contract sale as a comparable? What adjustments should be used, if any, because it was a land contract sale?

 

[TerryRohrer]

Depends on what a land contract sale is? Contract for deed, seller financed?

 

[Artemis Fowl]

A land contract does constitute a transfer of ownership rights. If it is a market indicator...depends. Are land contracts common for the neighborhood? Are the terms of the contract comparable to more conventional mortgages? These are often used for folks who would not otherwise qualify for a mortgage. If other sales are available, use those first. It could be good but more research is needed than a conventional transfer. I have not performed a secondary market appraisal in a while so others can better answer any issues surrounding that.

 

[Michael Shane]

Land contract is seller financing. Deed does not transfer until satisfaction of contract. This case; 150k sale, $12,000 down, 8% interest over 15 years. Land contract sales are not common for the area.

 

[TerryRohrer]

Around here, these are known as a Contracts for Deed. Ideally, you need to verify the terms...down-payment, rate, contract term, balloon payment, etc. These can help gauge cash equivalency.

The critical aspect is to ensure whether or not the contract terms affected the price. Often, even when the terms suggest an adjustment for cash equivalency is warranted, comparison to cash or conventionally financed sales do not support that.

These become more common when conventional financing becomes less attractive or less "available," but in some markets, are always in the mix. Like any other sale, if you put them in a grid and they say the same thing as all the other data, your fine. But when one is an outlier, the reasons causing that should be understood.

 

[TerryRohrer]

Land contract is seller financing. Deed does not transfer until satisfaction of contract. This case; 150k sale, $12,000 down, 8% interest over 15 years. Land contract sales are not common for the area.

Sounds reasonably comparable to conventional financing. If you know any lenders, see what their current terms are for a similar transaction. Looks like one I would consider without hesitation.

 

[Artemis Fowl]

Yup...other than 8% downpayment, looks similar to what a 700ish credit score will have available. Why would the seller accept this over a more traditional buyer where they can just walk away with their money and not worry about collecting payments? (this answer need not be complicated)

 

[Raven59]

As support, but with caution. It's not a transfer of rights, but it could be once the terms are met. Adjustments to consider might be the interest rate, downpayment, balloon payment, seller concessions, motivation, application of payments made during the term, and time.

 

[Artemis Fowl]

As support, but with caution. It's not a transfer of rights, but it could be once the terms are met. Adjustments to consider might be the interest rate, downpayment, balloon payment, seller concessions, motivation, application of payments made during the term, and time.

Contingent transfer. Just like a mortgage is kindof a contingent transfer. The real estate as collateral via retaining the deed until contract fulfilled. Mortgage does real estate as collateral via a lien position. Rights transfer with caveats....similar caveats. As long as the land contract conveys enough sticks in the bundle during the payment period it should constitute a transfer. At the least it may be an indicator of the market value of those rights...which is what the OP is asking.

 

[alebrewer]

It's not a transfer of rights, but it could be once the terms are met.

Not to be argumentative - as seller financing is not typical around my parts - but are you saying that the reason other loans are considered 'transfers' is because the rights are transferred to the mortgagee? Because, other than that, traditionally financed homes would be similar to seller financing insofar as the buyer doesn't 'receive' that bundle of rights until the terms of the loan are satisfied, right?