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

[residentialguy]

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.

I agree. I highly doubt that this had no affect on the sale price. The buyer couldn't get financed. The seller has the buyer by the ballz. The buyer can't refinance later to lower rates because the isn't in his or her name. Easy way you find out it's affect on sale price is to compare it to the other comps. Does the adjusted price vary from the other adjusted comps on the grid?

 

[Artemis Fowl]

Land Contract buyer is an owner, but they only get “equitable title” of the property. Equitable title is the right to obtain full ownership of property. This is different from legal title, which is actual ownership of property. The buyer will not get legal title until the total purchase price is paid.

Either way, in my State, a land contract for deed is legally considered a transfer as of the date the contract is signed and witnessed...not when the payoff happens.

 

[Terrel L. Shields]

The buyer couldn't get financed. The seller has the buyer by the ballz. The buyer can't refinance later to lower rates because the isn't in his or her name.

Actually, I see this some in rural areas. One, 8% seems a tad high, OTOH he is taking a risk. I know one such sale where the buyer only paid a couple of payments, then quit. The seller tried to foreclose to get the property back and the guy filed bankruptcy. After 18 months or so, the guy packed up and left while the court still had not decided anything. The bankruptcy trustee prevented the owner from occupying the property for another several months until the judge ruled they could. By that time the house had been vandalized. By the time he got it back, took $30k to restore to salable condition and he dumped it for a huge loss.

 

[Raven59]

Not in my state. It is like a rental agreement, with only those rights transferred. The buyer has the option to complete the deal or walk away. Ownership is transferred once the contract terms are met. If they stop paying, they get kicked to the curb. The only equity is based on the terms of the agreement and comes into play if the buyer exercises the option to purchase,

 

[Raven59]

A land contract "sale" is a deed transfer. A land contract is not a transfer. OP needs to word the question better.

 

[Raven59]

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?

I cannot tell if the original poster is saying it was a property under a land contract that was sold or just under a land contract—different answers to the question depending the wording.

 

[TerryRohrer]

I agree. I highly doubt that this had no affect on the sale price. The buyer couldn't get financed. The seller has the buyer by the ballz. The buyer can't refinance later to lower rates because the isn't in his or her name. Easy way you find out it's affect on sale price is to compare it to the other comps. Does the adjusted price vary from the other adjusted comps on the grid?

None of this is universally accurate. Sellers often prefer to finance. They can't get 8% cds. They can spread gains over multiple tax periods. The buyer can refinance the day after, with the funds paying off the contract, which immediately triggers recording of the deed conveying title to buyer.

 

[TerryRohrer]

Actually, I see this some in rural areas. One, 8% seems a tad high, OTOH he is taking a risk. I know one such sale where the buyer only paid a couple of payments, then quit. The seller tried to foreclose to get the property back and the guy filed bankruptcy. After 18 months or so, the guy packed up and left while the court still had not decided anything. The bankruptcy trustee prevented the owner from occupying the property for another several months until the judge ruled they could. By that time the house had been vandalized. By the time he got it back, took $30k to restore to salable condition and he dumped it for a huge loss.

Bankruptcy is the primary risk to the seller. Short of that, the common contract around here has a 30 day notice to cure missed payment, after which termination is quick and final, and the buyer gets nothing back. The notion these transactions are all defective and can't be relied on by appraisers is based on lack of knowledge. In some markets and in some periods, they are the predominant form of financing. Not just for the impoverished, I have seen very wealthy folks on both sides of contracts. No banks, no paperwork beyond a canned printout from a lawyer, no appraisals, streamlined financing.

 

[Artemis Fowl]

Not in my state. It is like a rental agreement, with only those rights transferred. The buyer has the option to complete the deal or walk away. Ownership is transferred once the contract terms are met. If they stop paying, they get kicked to the curb. The only equity is based on the terms of the agreement and comes into play if the buyer exercises the option to purchase,

If an owner stops making mortgage payments foreclosure follows. Owner has more protection with a mortgage...same result tho.
So riddle me this...
A buyer and seller come to a meeting of the minds and agree upon a price and execute a sale via land contract. Terms are fulfilled (say 5yrs). Deed transfers hands. If using as a comparable sale or for a study or whatever, what is the effective date of that sale price?

 

[Mark K]

Many of the rights in the "bundle" convey with the execution of the contract, but not all. In this state, there is no deed transfer until the LC is paid in full so the 'owner of record' is the seller until that time. If this was a common method of sale in the area, I might use one as a comp but since the property did not actually 'sell' (ownership transfer) I'd be reluctant. If recorded, the assessor will note on the property record card that the transfer is LC. However, if the buyers fail to pay taxes it falls back to the actual owner. In this state if you record the LC the property is taxed as owner-occupied at 1% of value. If not, the assessor assumes its a rental and is taxed at 2%, hence the incentive to record the LC.

I've sold several properties in this manner. I had a lot of rentals and when I wanted to get rid of them I went to the tenant to see if they wanted to buy it on LC. No money down, keep the same payment, they pay taxes and insurance and repairs, five year payoff. It worked out well. They all eventually refi'd and they were happy homeowners.

A LC is different than seller financing. Seller financing is the seller taking a mortgage but transferring the deed at closing, same as most sales with bank financing however, in this case, the seller is acting as the bank.