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Explaining the FSBO sales price?

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Tim Hicks (Texas)

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Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
I just got a stip from a lender asking why the contract sales price is $60,000 lower than the opinion of value. I think that is a reasonable request, but I had already disclosed that it is unknown to the appraiser why the home is selling so much below market.

What do they want us to do? Make things up?

In this case, the tenant is the purchaser. However, this great lender had no sales contract or sales price when they ordered the appraisal. They did insist I inspect the property immediately because they want to close this week. So, I make the inspection appointment on Friday with the tenant who is buying the home. The home is in really decent shape and only needs new carpet in the master bedroom and extensive landscape work in the front yard due to neglect. The in ground pool is even crystal clear and looks almost new. The buyer talks about all the landscape they need to do and they have already started. He mentions that the sales price will be significantly low for the area, but states the owner is meeting him later to finalize the sales contract but he never mentions a number other than he is only borrowing $40,000.

I put the appraisal assignment aside and wait for the lender to supply a contract. Monday afternoon they e-mail me a clean contract with no seller contributions or special provisions. The contract sales price is $140,000 with nothing in the sales contract to state why it is so low. My opinion of value can be anywhere in the adjusted sales price range of $195-210,000 with four sales, one listing and one pending sale all directly from the subdivision within the past six months. So, I include the comment that it is unknown why the sales contract price is much lower than the opinion of value as there are no sales that would support only $140,000.

This happens about once a year and it always seems to be a FSBO and many times it is the tenant purchasing the property. I know we have to reconcile the opinion of value and analyze the sales contract, but sometimes there is nothing to be said but "I don't know." Frankly, I don't care what the contract sales price is when I do an appraisal anyway.

Basically, it just peeves me that I have to type an addendum for a perfectly good appraisal.
 

Diego Lopez

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Joined
Sep 11, 2006
Professional Status
Certified Residential Appraiser
State
Florida
You already know why the sales price is low, the buyer is also the tenant, probably has been living in the property a long time and the owners gave the tenant the 1st right of refusal. This sale does not appear arms lenght.
 

Tim Hicks (Texas)

Thread Starter
Elite Member
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Texas
You already know why the sales price is low, the buyer is also the tenant, probably has been living in the property a long time and the owners gave the tenant the 1st right of refusal. This sale does not appear arms lenght.

I knew I left something out of my long winded explanation. The buyer has only been in the home about a month. So, I have no idea whether it is arms length or not.
 

toddmallard

Junior Member
Joined
Oct 4, 2007
Professional Status
Certified Residential Appraiser
State
Georgia
Who cares if its arms lenght or not. Yor job is to appraise it. Not use it as a comp.
 

farmguy

Member
Joined
Jun 27, 2007
Professional Status
Banking/Mortgage Industry
State
Texas
It's just me, but I would want to know. I have never inspected anything with a buyer that I don't talk about what they are paying, how long have they been looking, etc. If I meet seller I ask about offers written and verbal, etc.

Especially in a market that may be poised for a correction I will dig into any contract, agreements, etc.

I know on this site it seems a bunch of folks think it is none of our business to know why people pay what they do or why they accept what they do. I think that is the bulk of our job.

Like I said maybe it's just my nature but I want to know why something is selling 30% or so less than I appaise it for.
 

Kevin A. Spellman

Senior Member
Joined
Aug 30, 2003
Professional Status
Certified Residential Appraiser
State
Massachusetts
This is my typical comment with a property selling to a tenant.

Upon the transfer of the subject’s title, the seller will forfeit equity to the buyer who occupies the subject as tenant. A typical third party such as a real estate agent is not involved in this transaction. This is a private transaction without being offered to the open market.

Was your subject a true FSBO or just being sold to the tenant?
 

Gregory Beck

Senior Member
Joined
Aug 6, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I just got a stip from a lender asking why the contract sales price is $60,000 lower than the opinion of value. I think that is a reasonable request, but I had already disclosed that it is unknown to the appraiser why the home is selling so much below market.

In this case, the tenant is the purchaser. However, this great lender had no sales contract or sales price when they ordered the appraisal. They did insist I inspect the property immediately because they want to close this week. So, I make the inspection appointment on Friday with the tenant who is buying the home. The home is in really decent shape and only needs new carpet in the master bedroom and extensive landscape work in the front yard due to neglect. The in ground pool is even crystal clear and looks almost new. The buyer talks about all the landscape they need to do and they have already started. He mentions that the sales price will be significantly low for the area, but states the owner is meeting him later to finalize the sales contract but he never mentions a number other than he is only borrowing $40,000.

I put the appraisal assignment aside and wait for the lender to supply a contract. Monday afternoon they e-mail me a clean contract with no seller contributions or special provisions. The contract sales price is $140,000 with nothing in the sales contract to state why it is so low. My opinion of value can be anywhere in the adjusted sales price range of $195-210,000 with four sales, one listing and one pending sale all directly from the subdivision within the past six months. So, I include the comment that it is unknown why the sales contract price is much lower than the opinion of value as there are no sales that would support only $140,000.
I would tell them to ask their borrower, as they are the ones talking to him. You did all of the above like your suppossed to and your finished. If they don't want to lend that's their business.
 

farmguy

Member
Joined
Jun 27, 2007
Professional Status
Banking/Mortgage Industry
State
Texas
I guess I'm just old fashioned. While you visiting with the buyer none of you would have asked I don't have the contract yet, what are you paying? Have you been looking for a while? Do you know how long the place was on market? Did the seller approach you? Why is he selling? etc.

I just always do that. Aren't you curious why a reasonable guy would sell a house 30% below market to a renter that had only been there about a month?
 

Bama Bayou

Senior Member
Joined
Oct 19, 2006
Professional Status
Certified General Appraiser
State
Alabama
Easy explanation. "It appears the contract price is below market value". It's self evident but go ahead and hit them over the head with if it makes them go away.
 

hglenbetts

Senior Member
Joined
Dec 3, 2007
Professional Status
Certified Residential Appraiser
State
Michigan
A not uncommon practice in my market is the "Lease Option" where there is an agreement in the rental agreement that if the tenant decides to purchase at a future date, $XX.00 per month of paid rent will be credited against the purchase price. It's never $60K, or anything close, but it does result in a below market purchase price.
 
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