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Market value vs. appraisal vs. purchase price?

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julz6769

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Joined
Nov 9, 2008
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General Public
State
Washington
I'm totally befuddled! I came here to get some clarity if I may? As I'm over my head in this transaction and I don't want to make a big mistake.
I would like to purchase a property from an acquaintance for approx. 150K. She wants to buy a house that I own recently appraised at 110K.

We would each respectfully reduce our asking price by 50K as she won't be closing on the house she's buying from me for a while, and I want to close on her house right away.

So technically I would be purchasing her home for 100K. And get a loan for that amount.

She would get a loan for 60K later on to purchase my house.

I have come to understand though that a appraiser that comes out would put a lot of weight on the actual purchase price. (which would be 100k).

So actually It would make the property worth less if I buy it for less than market value.

How can I preserve the market value for the appraisal and not the actual purchase price? I understand that it is a "meeting of the minds", but that won't cover the fact that we're trading 50K equity that won't be showing on paper anywhere. Any help? Please don't laugh! Trying to wrap my brain around this!:Eyecrazy:
 

Tim Schneider

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Joined
Feb 8, 2007
Professional Status
Certified Residential Appraiser
State
Wisconsin
A high quality professional appraiser will report the market value of the property. Theorectically, the purchase price should not affect the outcome of the report.
 

Paul Isolda

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Joined
May 20, 2004
Professional Status
Certified Residential Appraiser
State
Connecticut
I think you need to consult a tax specialist/attorney first. You may have significant consequences selling and/or buying a property for significantly less than it's worth. As for how an appraiser would look at it, it is not an arm's length transaction and the market value is the market value. The properties, I assume, are not listed on the MLS. You may also have an issue with a lender, they usually loan on the lower of the purchase price or appraised value and your loan to value ratio would be calculated on the lower of the two numbers. Maybe, maybe not but there are a number of other issues I think you need to concern yourself with before you worry about the appraisal.
 
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Tim The Enchanter

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
If I was doing the appraisal, I'd estimate the market value, and note that you have some unusual contract terms.

The appraisers opinion of market value will be based on the comps. Simple as I can put it. :)
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
I'm totally befuddled! I came here to get some clarity if I may? As I'm over my head in this transaction and I don't want to make a big mistake.
I would like to purchase a property from an acquaintance for approx. 150K. She wants to buy a house that I own recently appraised at 110K.

We would each respectfully reduce our asking price by 50K as she won't be closing on the house she's buying from me for a while, and I want to close on her house right away.

So technically I would be purchasing her home for 100K. And get a loan for that amount.

She would get a loan for 60K later on to purchase my house.

I have come to understand though that a appraiser that comes out would put a lot of weight on the actual purchase price. (which would be 100k).

Welcome to the forum.

If the appraisal is done to market value, it is almost irrelevant what the contract price is. We would appraise the property to market value as of that date of inspection, known as the effective date of value.

So actually It would make the property worth less if I buy it for less than market value.

How can I preserve the market value for the appraisal and not the actual purchase price? I understand that it is a "meeting of the minds", but that won't cover the fact that we're trading 50K equity that won't be showing on paper anywhere. Any help? Please don't laugh! Trying to wrap my brain around this!:Eyecrazy:

If a mortgage finance transaction is involved with the purchase, the client and the entity ordering the appraisal would have to be the lender. This goes to the intended user and the intended use of the appraisal report.

Market value does vary over time. Purchase transactions that differ in time and location will have different values depending on a host of parameters. Predicting the future value or changes in value is not something that can be done with an appraisal for lending purposes.

It sounds like you have a complicated transaction that is dependent on the valuation of the properties at the time of purchase.

You can write up a purchase agreement that stipulates the purchase price to be the appraised value and what ever differences in the values can be also dealt with in the contract agreement. Language like the difference is not to exceed or whatever. You should have a lawyer draw up the contract would be my recommendation.
 

Terrel L. Shields

Elite Member
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Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
We would each respectfully reduce our asking price by 50K
If your state is a disclosure state requiring deed stamps, then you need to 'vet' the law to make sure you do not need to afix the higher amount of the sales to the deed. The state uses this information for a variety of purposes and the assessor might also be misled in valuing other properties nearby which can have not only tax consequences but ramifications for your neighbors should they attempt to sell. In my state, it is not legal to represent the sales price to be something that it is not.

Seeking legal advice would be the appropriate advice.
 

Mztk1

Senior Member
Joined
Dec 3, 2006
Professional Status
Certified Residential Appraiser
State
Florida
Your purchase price is still $150,000. It is $100,000 cash plus a $50,000 value in trade. Basically, since you are purchasing from one another, you are saying why bother letting the money swap hands, you just keep your $50K and I'll keep mine. That's fine as a side agreement between you and her, but the actual exchange remains $150,000 and for tax purposes and ease of transaction, that is what should be shown. To illustrate what I mean by the price is still $150,000, What happens if you purchase her house and then she ends up unable to purchase yours later on? Is she out $50,000, or will you have to come up with it?

It is probably best to make it a $150,000 sale on the contract with the terms showing that $50,000 of the balance will become due with the sale of your home. Then when you sell your house to her, it is for $110,000 with $50,000 going from you back to her to pay off the prior transaction.

This keeps it neat for tax purposes, too.

The best advise is for the two of you to find a real estate attorney who can work the deal out correctly between the two of you.
 

Lobo Fan

Elite Member
Joined
Nov 28, 2004
Professional Status
Certified Residential Appraiser
State
New Mexico
The appraised value should reflect the current market conditions and not the purchase price. Some lenders have a real problem with appraised values in excess of the purchase price as I recently discovered. I agree with those suggesting legal advice.

Your appraisal should indicate market value. The contract amount is irrelevant to the appraisal.
 

Parker

Sophomore Member
Joined
Nov 3, 2007
Professional Status
Certified Residential Appraiser
State
California
"I'm totally befuddled……..I would like to purchase a property from an acquaintance for approx. 150K. She wants to buy a house that I own recently appraised at 110K…..We would each respectfully reduce our asking price by 50K as she won't be closing on the house she's buying from me for a while, and I want to close on her house right away……but that won't cover the fact that we're trading 50K equity that won't be showing on paper anywhere. Any help? Please don't laugh! Trying to wrap my brain around this!"

I am surprised that no one as thought of Tax Fraud & Jail Time!

Both parties are agreeing to purchase a house for 150K and report it as a 100K transaction. The purpose is to avoid paying taxes on the full amount. In addition, they are looking for an appraiser to perform an appraisal and not report the detail of this transaction to a lender. Every appraiser with a license should be pointing this out! :new_smile-l:
 

julz6769

Thread Starter
Freshman Member
Joined
Nov 9, 2008
Professional Status
General Public
State
Washington
Tax Fraud? Ridiculous!

I'm here looking for information how to correctly and LEGALLY stucture this purchase from a professional appraisers' point of view.

The paperwork side will be handled by an Attorney.

I just have concerns about sustaining the value of the property. We are giving each other 55k equity in each of our houses. There will be a paper trail showing this.

I was told by a couple of local appraisers (I called anonymously) that a lot of the appraisal comes in around the purchase price as it would be a "meeting of the minds" between a seller and purchaser.

Should I just tell the appraiser that the reason we're actually paying less is because I'm basically giving him my house in a different City?

I just want to preserve the value of the home I'm buying. It does seem the answer in this depends on what each different appraiser answers. How do I know which is true, very different opinions? Again, thanks for the previous and future suggestions.
 
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