Recorded sale price vs MLS sale price

[Fnbpos]

You are the seller, you have the property listed $1,000,000 UNFURNISHED with an agent and a 6% sales commission. I make an offer, presenting a signed $900,000 sale price. You accept and sign the contract. Buyers closing costs will be say $10,000 and the sellers closing costs will be $12,000 plus the RE commission of $54,000. (don't argue the numbers, they are just numbers for example sake). The sellers "NET in pocket" is $900,000 less $12,000, less $54,000 or $834,000. The "COST" to the buyer is $910,000 ($900,000 PP + $10,000 CC).

About 2 weeks after the contract is signed, an addendum is proposed by my attorney. We are going to either re-write the contract or produce an addendum stating that the SELLERS CLOSINGS COSTS are to be paid by the BUYER. Not only that but are are going to allocate $50,000 for "personal property including built-ins and other fixtures." The "NEW" contract is now an "UNFURNISHED contract at $784,000. (834,000 less 50,000).

The recorded price in the public records will be based on the doc stamps paid which will be based on the lower amount of $784,000. The MLS sale price will indicate $900,000.

Remember that Seller NET and Buyer COST from above. Now the seller is receiving $784,000 "new" contract price AND $50,000 from the buyer to pay for the "personal property'. That's $834,000, the SAME net under the "original" contract. The buyers is "spending" $784,000 on the house, plus RE commission $54,000, plus Buyer & Seller Closing Costs (10k+12k)) and $50,000 for that "personal property" that is actually Real Estate.

The above "play" is almost standard operating procedure in my market for many higher end transactions. Started about 3 years ago and getting worse by the moment.

You may be asking WHY ? The attorney believes that by showing the lower sale price the County Property Appraiser will be "influenced" to provide a lower assessment going forward thereby resulting in a lower tax bill. What they don't realize is that the Assessor Office has access to the MLS data too.
The RE agent simply says "not my doing, its those attorneys"

And so...how does this impact us appraisers...

Well, the next time you pull up a comp in MLS and the Sale Price is $900,000 but the public records say $784,000; be careful. That $784,000 in the public records MAY NOT be the product of any "meeting of the minds"; it MAY simply be a number manufactured by the playing around of numbers & costs (and often the recorded price is an odd-ball number such as $783,426).

That $784,000 sale price you're using MIGHT BE misleading; and trust me when I say, I've seen plenty of appraisers use it as the comp sale price. I've even had lenders insist we use the $784,000 as the sale price (until it is explained to them).

This is eventually going to bite someone, just not sure who or when.

BTW, the is an exact deal that came into our office last week (the numbers were changed to protect the innocent).

 

[J Grant]

It's a tough problem in that particular high end market. And honestly, at this point I don't have a definitive answer but I can share thoughts.

One can say that 900k is the real "meeting of the minds." But then again, the re negotiated 784k a "meeting of the minds", and an addendum to a contract is the finalized price. This revised 784 suited the parties tax wise and personal property wise and who pays costs to benefit them. Overall, I lean toward 784 k as the "real " price.

MLS likes to record the higher prices in order to keep prices "high", yet at closing the people are actually only pay a lower price. My attitude is that their machinations and evasions for tax purposes and flip around who pays closing or RE commission is on them. It's obviously an advantage to them to do things a certain way, but at the end of the day, at closing, we can only verify that X$ changed hands for title .

BTW, I think this trend of buyer paying RE commission is because the actual commissions paid on these large deals is likely far lower than 6%, and this is a way for agents to save face and not show what they really getting paid. A careful with $ wealthy person is going to pay an agent 5 or 6% on a 14 million $ house? I don't think so. I think they whittle it down to whatever they can squeeze the agent or agents down to, then separate it out if it suits for buyer to pay instead of seller.

I've asked a few agents on these deals what they actually got paid, one admitted it was in 2-3 % range, the others said it was confidential, the other said it was of course 6% , really...in any event, both amounts are meeting of the minds. This is a tough question; certainly easy to figure which figure the RE agents want to see us use!

Most deals in this area are for cash so if they get a mortgage it is not that critical an LTV . I do purchase appraisals in that area and the terms are nearly always for cash in the contract.

 

[J Grant]

That $784,000 in the public records MAY NOT be the product of any "meeting of the minds"; it MAY simply be a number manufactured by the playing around of numbers & costs (and often the recorded price is an odd-ball number such as $783,426).

But the 784k was a meeting of the minds. An addendum was made to contract and approved/signed. A troll did not sweep out of the sky and write this addendum. A meeting of minds was made that at closing, X$ would be paid for the property, to transfer title and then they proportion out associated costs as it benefits them. This is not a manufactured number, this is an agreed on new price with amounts of associated costs proportioned out for tax evasion, to be frank , and financial advantages of writes offs associated with acquiring property.

 

[Mike Kennedy]

One more reason why a Subject's reported "Contract Price" is irrelevant and should never be "given consideration or weight" in developing an "independent, OBJECTIVE OMV based on the confirmed actions of OTHER buyers of OTHER competitive properties.

Good post. Thanks.

 

[J Grant]

IF a seller paid closing costs that a buyer normally pays, and the price is raised by mutual agreement to cover the costs of such, we call it a concession and deduct it from SP. Paying more is an advantage to buyer because they paid less out of pocket cash at closing.

This is the reverse, but the application applies. If a buyer pays closing costs and/or commissions normally paid by seller, in order to lower the price, it's still a concession, aka a term of sale that impacted price ( in this case to lower it for buyer advantage of paying less taxes and acquiring property for less if commissions are factored in ).

Personal property is supposed to be taken out of a sale price .

 

[Mountain Man]

Doesn't affect us in GA. Our MLS requires a copy of the HUD1 to report a sale. The attorney is also required to file a PT61 with the deed that specifies real estate or personal property.

 

[Fnbpos]

Mr J Grant... You sir and 100% incorrect. There is NO "meeting of the minds" in the addendum. The addendum is ALL the result of the attorney; neither the buyer or the seller had anything to do with the $784,000. The $784,000 is the result of shifting costs normally made by the seller such as the RE commission to a "buyer expense". Also, the S784,000 is the result of backing out a "make believe" $50,000 for personal property that never existed. The fact that the buyer and seller signed the addendum means nothing more than "they" are in on the game too.

Your also wrong about why buyers are paying RE commissions. The seller and RE agent have a signed listing agreement; sellers know exactly how much commission they will be paying.... did those agents you asked ...did they work both sides of the deal ? you know listing agent and selling agent ? or was that 2-3% just on one side thereby equating to a 4-6% total commission. For the record, a typical commission on the high end is 5% even for $14,000,000 properties.

I'm not surprised by your response, maybe I should be. Statements such as "MLS likes to keep prices high" does nothing but cloud your thinking. In the above example, the MLS price is $900,000 because that is what the agent got the seller and that is what the commission is paid on; simple as that.

I see your on this board constantly....how to you find time for that....its so busy out there right now that I don't see how you find the time.

 

[J Grant]

It's Ms Grant...

An attorney, all by himself or herself, decides to change a price to 784k and costs /pers property terms without buyer/seller knowledge...I don't think so. The buyer and seller agreed to the changes made by attorney/directed atty to do so. Which means there IS a meeting of the minds on this by parties on the final price and terms.

Whatever the commission is, and it may not be 5 or 6%, if a buyer agrees to pay it instead of seller and it had the effect of lowering price for buyer, then buyer saw a price advantage to do so.

MLS shows a higher price because that is the price they want to put on MLS. It is higher than the $ exchanged at closing for title to real property. You noted that many appraisers use the lower recorded price and that lenders direct you to use the lower recorded sale price (till you explain it to them), so your thinking on this is not that of 100% of your peers or industry acceptance.

I fully understand your thinking on this and I struggle with it as well when I do assignments on Palm Beach Island and the few other areas this occurs, it is mainly on Palm Beach Island so it is not typical regional practice to section out costs like this at closing, it occurs on aprox half the deals there..a mess for sure.

The prevalent thinking in appraising and directives for lending work is that when/if terms and concessions or seller paid impact price, to adjust those amounts out of price. In these examples the terms and assigning of who pays what is impacting price, but it is already "adjusted out" by the parties because a transaction that closes for less has tax and other advantages to them.

 

[Fnbpos]

I'll condense it... I offer you $900,000, you accept; signed contract. Attorney calls us in..."guess what guys, I moved this expense here and that expense there, shifted this here and there; we can allocate for personal property and MAKE IT LOOK TO THE ASSESSOR LIKE YOU ARE ONLY PAYING $784,000. Don't worry you're getting the same amount of money and paying the same amount of money as if we kept it at $900,000. Its a loophole that's perfectly legal....you guys in" And we sign off. You really going to use $784,000 ??

How about this real life one: Sale price $1,500,000; addendum added allocating $400,000 for "personal property and other fixtures" Recorded price $1,100,000. THE SUBJECT IS VACANT; NO FURNITURE; NO PERSONAL PROPERTY. Are you still going to use the recorded price ?

 

[J Grant]

Mr J Grant... You sir and 100% incorrect. There is NO "meeting of the minds" in the addendum. The addendum is ALL the result of the attorney; neither the buyer or the seller had anything to do with the $784,000. The $784,000 is the result of shifting costs normally made by the seller such as the RE commission to a "buyer expense". Also, the S784,000 is the result of backing out a "make believe" $50,000 for personal property that never existed. The fact that the buyer and seller signed the addendum means nothing more than "they" are in on the game too.

This statement is ridiculous. Buyer and seller had meeting of the minds to make these changes, an attorney does not force changes on a buyer and seller. The parties likely already agreed on the side to this revision that was going to occur on the addendum at the initial contract signing of 900k. The last /most recent date signed page of changes or addendum of revised/price/terms/payouts that is fully executed by parties to a contract is considered the final binding price and terms of contract legally.

And the fact that even you refer to it as a "game" tells us something....they are playing games for tax and payout advantages, and "games" that affect price are supposed to be analyzed /adjusted for impact on sale prices.