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The Trouble With Townhomes

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heres2hope

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Joined
Aug 12, 2005
Professional Status
Certified Residential Appraiser
State
Utah
I am doing an appraisal on a townhome in an oilfield town so the market has been depressed for the past couple of years. After talking to a bunch of agents I am finding that it is recently stabilizing. The only comparable town home sold in December for like 165,000 after the person who bought it decided to not divorce he relisted the house in June and got an offer in July for $165,000. After calling the agent to find out why it sold for so much lower the second go around she tells me the appraiser appraised it for 150,000 because there are NO comps the seller wanted out and so he sold it at the lower price. Part of the issue is the development is higher end and comps just are not as nice. The fact that 3 people want to pay ~ $165,000 for a town home in that development says something ... Couple of questions 1- would you use the sale that took place in December then just make a note that it sold more recently and why you didnt use it. 2- if there are no sales for similar higher end town homes ( there are lower end town homes which I have been in )when would you consider using SFR?
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I am doing an appraisal on a townhome in an oilfield town so the market has been depressed for the past couple of years. After talking to a bunch of agents I am finding that it is recently stabilizing. The only comparable town home sold in December for like 165,000 after the person who bought it decided to not divorce he relisted the house in June and got an offer in July for $165,000. After calling the agent to find out why it sold for so much lower the second go around she tells me the appraiser appraised it for 150,000 because there are NO comps the seller wanted out and so he sold it at the lower price. Part of the issue is the development is higher end and comps just are not as nice. The fact that 3 people want to pay ~ $165,000 for a town home in that development says something ... Couple of questions 1- would you use the sale that took place in December then just make a note that it sold more recently and why you didnt use it. 2- if there are no sales for similar higher end town homes ( there are lower end town homes which I have been in )when would you consider using SFR?

?? Did you mean to say he sold it for 150k in June ?

If he sold it for 150k, that is perhaps what the market was willing to pay at the time. We have to remember the spin RE agents like to put on prices- if the buyers had wanted to pay the 165k when appraiser appraised it at 165k, they were free to put down 15k, right? So why didn't they- one presumes if it was so desirable, the seller would have had back up offers, though seller just wanted out, if the market is good they'd have another buyer waiting.. So there is truth to that his motivation affected price but a market is not just the seller it is also buyers- and RE agents answer in a way that furthers their agenda.

But indeed, the the fact a townhome is in contract for 165k does mean something ( with 2 other offers at 165k?) Regarding the June sale, can't just ignore a recent sale because you don't like the price or it means your subject CS price may not be supported. . Are there other listings of townhomes in subject subdivision, and are there any similar townhomes in the area even if a few miles out? What is the rest of market doing in immediate subject area as far as prices/inventory?

I might use both sales of the townhome comp- the Dec sale and the June sale and explain each ( btw, this might not be true of your area, but in my area some prices were higher a year plus back, interest rates were lower then). I would search for another townhome if possible or an attached villa, if I must use a single family would look for a zero lot line or small lot.
 

Mark K

Elite Member
Joined
Jan 27, 2004
Professional Status
Certified Residential Appraiser
State
Indiana
1) No. Vice-versa. I'd use the recent sale and discuss the previous sale. Realtors always say that the sale was 'distressed' when it sold for less than what they thought it was worth.

2) It depends on the local buyers and if they consider the two property types similar enough to be substitutes for each other.
 

Terrel L. Shields

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Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
townhome in an oilfield town
Vernal? Didn't it have quite a few commuter programmers living there because a high speed fiber optic was available and they could tel-commute from Silicon Valley?

Note the resale, but what other sales are out there? Long way from next similar town, I assume
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
2- if there are no sales for similar higher end town homes ( there are lower end town homes which I have been in )when would you consider using SFR?

What makes the other townhomes lower end- are they in same subdivision as subject or a worse subdivision?
 

hastalavista

Elite Member
Joined
May 16, 2005
Professional Status
Certified General Appraiser
State
California
A person buys a residence in December for $165k. Then, re-lists it for the same price ($165k) and gets an offer at $165k. The finance appraisal comes in at $150k so he sells it for $150k. The only reason the owner held it for a few months was because s/he purchased it under the condition of an upcoming divorce and decided to sell it when because the divorce was cancelled? Or, was it purchased in December when things were happy at home and then sold in July because things went south?

The reason I ask is because there may be motivations involved here which may warrant a conditions-of-sale adjustment.

I don't see why you cannot use both sales in the grid. And perhaps you may want to give more weight to one vs. the other (based on your research). I'd certainly dig deep into the December sale and try to find out what the conditions of that sale were including what the interest-activity was, if there were potential offers at different price points, its marketing time, etc. (Marketing times in my market can be affected by the seasonality). Sounds like you've already dug into the most recent sale and found out that the first contract fell out due to an appraisal contingency and the seller decided to accept the lower price (10%) to get out of the deal. Again, the specific circumstances of the seller's motivation at this point are important to understand and reconcile.

I would not summarily dismiss the 1st sale because of the 2nd sale. In fact, I'm more suspect of the 2nd sale than the first sale (but I'm still unclear of the exact conditions of what motivated the initial buy and then later sell decisions).

As to using SFRs in the appraisal vs. a townhouse, if you use them in the grid, that will cause nothing but heartache. However, you can do a supplemental analysis if you think it is meaningful and consider those results in your reconciliation.


I don't default to the assumption that real estate agents are liars. That isn't my experience in my markets.
I do default to "trust but verify". Their feedback is data I put into the mix and consider.

My bottom line is this: If, in my opinion and based on my analysis, the subject of my appraisal has a value closer to $165k than $150k, then I'm going to make that conclusion and explain (and support) why I came to that conclusion.

Good luck!
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
I would go with the $165K
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Use both and relay what you're being told, and then reconcile for your opinion of value. Don't selectively edit the data because it takes more work to use it, and especially don't make the assumption that nobody will notice it or ask you the question after the fact. At which point you'll be defending your credibility.

It's sometimes faster to do it right than to do it quickly.

I would guess that your other lower appeal comps have been demonstrating their own value trends over the last 12 months (same with competing property types in the area), which you can analyze and compare to your inside comp's 2016 sale, and then cite as support for the quality/appeal adjustments as well as the market conditions adjustments that they may indicate to.
 

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Edit to add - this is where summarizing the prevailing pricing trends for all residential properties on the lower end in that area in your neighborhood analysis will provide the context for your analysis of your subject's market segment. There is a lot of utility in starting with the macro before we get to the micro.
 
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