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This is new to me

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Pamela Crowley (Florida)

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Elite Member
Joined
Jan 13, 2002
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Retired Appraiser
State
Florida
I have a new comp on the subject street. Listed at $156,900, DOM 46, Sold Price $140,000.

I'm thinking highly motivated seller = unqualified sale. It's coming in about $8,000 under my other comps. So.... I call the Realtor.

New twist, at least for me. Seems the Buyer paid all the Sellers closing costs and lowered the sale price to make up for it so that his taxes would be lower.

Realtor tells me they knocked $12,000 off for both buyers & sellers closing costs. I insisted on the breakdown between the buyers and the sellers closing costs so he tells me the sellers would have been at least $6,000.

How would you handle this in a sales grid? I'm planning on adding $6,000 in the concessions line with an explanation of what happened. It's really obvious in the grid that this sale price is low.
 

Mountain Man

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Jan 15, 2002
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Certified General Appraiser
State
Georgia
Wow, considering Realtors are paid on % commission, it's hard to belive that they would recommend that idea to the seller. 8O

Rather than using a comp with some screwy concessions, that is only going to make the UW very nervous, I would find another sale. You verified it, jot your notes down in your file, and look for another. Unless you gotta use it (ouch) ..... long addendum with a copy of the MLS sheet or other data to prove your point.
 

Pamela Crowley (Florida)

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Professional Status
Retired Appraiser
State
Florida
:lol: Interesting thought Mel. I'll bet the commission was figured on the $152,000 amount the Realtor told me they were going to settle on.

The next comp is 11.5 months ago. I was using the old one as a 4th but I think I'll move it and use this new one as the 4th.

This Realtor did tell me he's done a few this way this year. Something else to start watching for and calling about! I wonder how the county, state, and IRS would feel about this.
 

Joe Moore

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Joined
Jan 30, 2002
Professional Status
Appraisal Management Company
State
Pennsylvania
Fannie Mae guidelines prohibit positive sales concessions adjustments.

Specifically:

Section 406.05 Underwriters Review of Adjustment Grid

"Positive adjustments (or relative relationship assessments) for sales or financing concessions are not acceptable."


If you must use the sale, do not make an adjustment but explain in your narrative why the sales price is low. Ideally, if possible, this sale should not be used.

Have a great holiday!

Joe Moore
 

Austin

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Pam: Your story reminds me of my chief objection to some people making a religious ceremony out of verifying sales. If a seller nailed the buyer to the wall do you think he is going to fess up and tell an appraiser? Same for the buyer. What do appraisers think they are going to say: “Boy did I defraud those fools.” In this area that scam you just described is agin the law. Not to mention if the fool sells it any time soon he will have a huge capital gains tax to pay. What kind of taxes is he saving? Why didn’t he just get the seller to give him the house and sell the seller one lottery ticket with a prize of $159,500, with the drawing to take place at closing. Then he could really sell some taxes.
Speaking of verifying sales, an old real estate buddy of mine purchased a 131 acre farm this year for $131,000. He then sold $131,000 in timber, then sold the cut over timber land for $175,000. Would you say this was an arms length sale? I asked my buddy and he just smiled and said: "Yeah."
 

Pamela Crowley (Florida)

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Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Thanks Joe! I hadn't gotten that far in posting the guidelines - mainly because I've been reading them as I post them. I've fallen behind and it must be past time for me to catch up!!!

Austin,

I wonder how long this Realtor is going to get away with this. Since he's done a few of these, I wonder if he's now suggesting it. Eventually, this story will come out and I'll bet a couple of licenses will be lost. He was moaning over the lower prices when using these sales as comps. Gee, too bad!!!

I'll take that comp out, mention it in the addendum as what was determined to be an unqualified sale.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
If this guy keeps it up, what he's going to do is create a declining market indicator. He'll get his comeuppance when appraisals can no longer make in his market.

Roger
 

Don Jones

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Joined
Jul 31, 2002
Professional Status
Certified General Appraiser
State
Missouri
Pam,

It seems to me that "cash equivalency" is what the seller received in terms of cash. If he received $140,000, then in my mind, that is the sale price of the property. No need for a lot of gyrations trying to make concession adjustments.

If the sale price has been verified at $140,000, and the seller received $140,000 in cash ... then that is the sale price. A sale price, like anything else, is what it is, regardless of what someone may choose to call it.

Kind Regards !!
 

Pamela Crowley (Florida)

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Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Yes, but....

There are still closing cost with a cash sale - for both sides.

I don't really understand how the Realtor came up with the $12,000 in CC.

Roger, You've got that right!
 

Blue1

Elite Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
California
Pamela,

One of Austin's comments stuck in my mind. How much is the buyer really saving in taxes? At first glance, it doesn't seem like much of an incentive......

Correct me if I'm wrong, but aren't all concessions supposed to be negative adjustments per Fannie Mae? The thought being.....there must be something wrong with the house and/or market for anything less than an "arms length" transaction.

This look like a bad comp to me.....Unless it is typical of your market.

Just my 2 cents worth.....
 
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