Cash Sale as a comp

[Non Sequitur]

The definition of market value is "cash" so if there is a "discount" for a cash sale then every comp in your market with financing needs an adj for cash equivalency, not the other way around!
If cash is better, ie: specifically reflecting a change in sale prices, then this is why we all learned how to do the points and interest rate equivalency adj in basic appraisal classes...if your market reflects financing costs more (higher sale price) then you need to be making a market condition adjustment (which would be negative). FNMA does not allow a + financing adj because the measure (equalizer) is already cash and there cannot ever be a + financing adj, it would ALWAYS be negative!
Read the certification...definition of market value items 4 and 5: terms in cash or cash equivalent...

This nails it.

 

[Bama Bayou]

Never use a cash sale, it makes way too much sense and leaves out the leeway for adjustments.

 

[Deleted member 80407]

Another senario to consider

Jennifer, I do not know your market. Is it a declining market? Are there a lot of REO and foreclosure sales? Sometimes condition of a property may force a cash transaction. I have seen properties in my market area which would not qualify for conventional financing because of condition (lacking heat, leaky roof, non-functional kitchen/baths). These are properties usually investor's purchase. As you can see by all of the reponses, there are many questions that should be asked with presenting a cash transaction.

 

[mark jacobs]

Luck would have it

We couldn't imagine having an appraisal with all comps, cash sales.
There must be something in the water(or sand) out there that would generate such a situation.
Around my neck of the woods that situation only happens on the $million+ home appraisals. And we don't have many of those sales, except in the Hill Country.
Of course a $20,000 discount(???) for cash would be less distinguishable in a paired sales analysis for homes costing in the millions. Although it is possible.
Jennifer what kinda house are you appraisin'.

 

[Joyce Potts]

Congratulations - if you can qualify that sale as being arm's length, you probably just stumbled on the perfect sale.

Now go and consider adjusting your 'financed' sales with your cash sale being the benchmark.

Appraisal 101 - Cash or its equivalency and the principle of substitution.

 

[aussie ken]

Hi Jennifer...........From Down Under there is an advantage in the use of cash in negotiating a sale .........and that is the TIME ADVANTAGE it can offer a vendor. This time advantage can be related to the time value of money or that the vendor doesnt need to have a lengthy settlement for pesky valuers, and loan officers to do their thing (ie extra weeks if not months). I would suggest that such an advantage would certainly be measurable with some indepth analysis but in practical terms this is more an academic task and it would be difficult to justify your time on the exercise.

 

[Pamela Crowley (Florida)]

Just a note, I did a review of a report by written by a number hitter or "Skippy" appraiser as they are called here on the forum and I noticed that all three of his comps were cash sales. They also closed for the highest price of all sales that could be considered comparable to the subject. I verified all three sales with Realtors and found out that they were all out of town buyers who sold their existing homes and made full price cash offers without the benefit of a pesky appraiser telling them that they were paying too much.

No wonder Skippy "Cherry picked" those sales to support the inflated value of his subject.

Good for you Beavers!!!

I was finding these 'cash' transfers here, mainly in the condos, years ago as the market started going crazy. Finally found a newbie Realtor that told me not to tell, but the buyers, (investors club people), were flipping to each other, recording the deeds but not exchanging any real money other than the deed recording fees and 'tax' (stamps here) based on the $$$ they wanted the units to be. These misleading 'sales' were then used as 'comps'. Just one of the ways they artificially inflated the market and a game that's been played many times for many years by 'insiders'.

About 10 years ago, I found an old time Realtor and developer in a small FL city that had been flipping his development lots to various relatives for many, many years to set the market prices for his area. I found out by locating and calling an out of state buyer that told me the Realtor/developer/seller was his uncle and that was just paperwork. He had no clue what his uncle was really doing, just knew he 'owed' some Florida lots that his uncle would pay the taxes on and he had already signed non-dated Quit Claim Deeds back to his uncle for them.

This is why real appraisers verify the terms and conditions, as far as possible, before calling any sale a qualified comparable. At least, that is what we are supposed to do and what would set appraisers up way above and apart from the AVMs if we ALL would do this.

 

[sbb04]

No one has mentioned this one VERY pertinent point:
FNMA does not allow positive financing/conditions of sale adjustments...

QUOTE]

Bingo. At worst I would state it was a cash sale and 'may' have been discounted somewhat and have that as your third comp. As long as it is reasonably close to your value I wouldn't see a problem

 

[AirmontNY]

I am working on an appraisal and there is not many comps out there and I am forced to use one where the buyer paid cash. I am wondering how I adjust for this, it seems as if they got a deal of about 20K or so, but i need to prove it. The classes I took are fading in my mind:Eyecrazy:, and I think I need to do the cash equivalency adjustment?! I don't remember how it works, could someone please advise! Thank you!

Jenifer-It is a valid Comp if you can confirm the exact sale price reduction-concession because of it being a cash transaction. A swift-no-hastle closing could be worth 20k (or more) to a seller. But it has to be confirmed via a Broker or one of the parties to the transaction. (Often the buyer-seller will also give the reason why they needed a quick sale (relocation, business opportunity, new home opportunity, etc.)

Contact an attorney, buyer, seller, broker-some party to the transaction. and let them know you want to use the sale as a Comp and need their help to know the reduction-concession because of the cash nature of the transaction. Somebody will help you confirm the concession-reduction because it was a cash transaction.

If the Comp sold $500G then the adjustment-sale price-reduction-concession is +$20G on the Comp-all other things being equal (which is never the case-LOL).

 

[incognito]

If the Comp sold $500G then the adjustment-sale price-reduction-concession is +$20G on the Comp-all other things being equal

This is BAD advice, IMHO, on many levels. PLEASE strongly consider NOT doing this, Jennifer.