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Uninformed Buyer

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TennGreenApprsr

Freshman Member
Joined
Jul 12, 2016
Professional Status
Certified Residential Appraiser
State
Tennessee
I recently received a reconsideration of value request to consider a comp that was unusually high for the market area. I called the buyer's agent for the comp to get some insight into why the comp sold for so much higher and he said he didn't know of anything out of the ordinary, no duress, no relationship to the seller, etc. Just that they were a recently retired couple who made an all-cash purchase to move from Chicago to Nashville to be closer to their son. Agent said, even though it was a cash deal, he still offered to have an appraisal done before closing but the buyers were not interested.

Subject is a semi-detached dwelling, 1100 sf, 2/1.0 w/ a contract of $177,000. I have two 3/2.0, 1400sf comps in the same development, similar condition and a couple of other comps that support a $160k value after adjustments.

The cash comp they want me to consider is similar in most all aspects to the subject but I am fairly certain that it is not a good indicator of value. From what the agent described, it is most likely not a reliable comp due to an uninformed buyer (out of town, refused appraisal) but I am not sure how to word it in the revision.

Any advice?
 

Meandering

Elite Member
Joined
Feb 26, 2006
Professional Status
Real Estate Agent or Broker
State
Pennsylvania
Maybe their son lives next door, so there was a use value to them to pay more to be next door to their kid.

.

.
 

CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
we see these super high cash sales all the time in our retirement communities. i note they are given less weight as they reflect atypical buyer exuberance.
 

Howard Klahr

Senior Member
Joined
Oct 4, 2004
Professional Status
Certified General Appraiser
State
Florida
I am fairly certain that it is not a good indicator of value.
You are guessing. You have no factual information to support this statement. Did you make any effort at all to contact the buyer and discuss their motivation? What about the selling agent to find out about any other offers submitted for consideration?

Now this is not to say that any one particular sale sets a market. What other data is there? Sales, listings, sale to list price ratios, days on market, etc? In order to properly respond you need more information than you provided in your post here.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
" Just that they were a recently retired couple who made an all-cash purchase to move from Chicago to Nashville to be closer to their son. Agent said, even though it was a cash deal, he still offered to have an appraisal done before closing but the buyers were not interested. "

You answered your own question, just explain it. If majority of sales occurred around the 160k range of this type of property, then a much higher ( or much lower sale) does not represent typically motivated buyer. Remind the reader that the market value opinion is defined as the most probable price (not the highest price according to an outlier sale that occurred with no other support )
 

AMF13

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
Statistical outlier. Or, just an outlier, not indicative. What they said above. :)
 

CindyR

Senior Member
Joined
Oct 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
i'll add another thought here. OP mentioned this came up as an ROV request. If it was good comp and very similar to the subject it should not have been excluded just because it was too high. it should have been included as a page 2 or 3 comp and explained away.

i had one of these just a couple weeks ago. a very unique home - largest model in the subdivision - 8 model match sales in the past year. Comps 1 - 6 ranged from 250 to 270 and were all basically the same. some with pools; some with granite; easy to isolate and adjust. and then there were the other 2 sales. the one from April sold for 290 - no rationale for that at all - just the same as all the rest. the one from earlier this month sold for $200. yes, it needed paint and carpet but surely not $50,000 dollars worth. i learned the seller got frustrated after 2 contracts collapsed and just said yes to a low-ball cash investor. I added these sales as comps 7 and 8, rather than having someone ask me (now or 3 years from now) why i did not. And then i explained that these were both well outside the typical range of sale prices and values for these model match homes in this subdivision and these 2 sales both reflect atypical buyer or seller motivation and they are given no weight as the other 6 sales are all much better indicators of value for the subject.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
i'll add another thought here. OP mentioned this came up as an ROV request. If it was good comp and very similar to the subject it should not have been excluded just because it was too high. it should have been included as a page 2 or 3 comp and explained away.

i had one of these just a couple weeks ago. a very unique home - largest model in the subdivision - 8 model match sales in the past year. Comps 1 - 6 ranged from 250 to 270 and were all basically the same. some with pools; some with granite; easy to isolate and adjust. and then there were the other 2 sales. the one from April sold for 290 - no rationale for that at all - just the same as all the rest. the one from earlier this month sold for $200. yes, it needed paint and carpet but surely not $50,000 dollars worth. i learned the seller got frustrated after 2 contracts collapsed and just said yes to a low-ball cash investor. I added these sales as comps 7 and 8, rather than having someone ask me (now or 3 years from now) why i did not. And then i explained that these were both well outside the typical range of sale prices and values for these model match homes in this subdivision and these 2 sales both reflect atypical buyer or seller motivation and they are given no weight as the other 6 sales are all much better indicators of value for the subject.

I think adding non comparable sales to the grid is a weak reason, to put them in just in case someone asks why you did not use them. Leave them off the grid, explain in narrative if you wish why you did not use them. Using very high price/very low price /odd sales, then giving them no weight....if they are so not indicative of the market, and given zero weight, why are they on the grid? Leave them off, mention them by address and why they were not used.

I just did that on a report. I used three sales to owner occupants, normal sales with reasonable prices reflecting their value. Then there was a fourth, very recent, very high $ sale relative to its small size, right on the subject street. Right away I had an odd feeling about it...it was a flip sale, renovated after being bought as an REO, with 2 prior sales in one year. I called the RE agent, the RE agent was also the seller....the whole thing gave me an uncomfortable feeling and the price paid, even allowing for it being renovated, was way over the market because this sale was much smaller than other homes nicely upgraded that sold for less. I noted the address and why I did not use it, since it was on subject street it would come up n a search of the area. I dislike this form of defensive appraising, having to explain not only what we did, but what we didn't do, but it is part of the unfortunate environment we are now in, where everybody has access to data and feels entitled to run data and ask why the other X# of random sales that occurred were not used.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
In the OP case, I would not call that sale an outlier, it is more like a higher than typical price due to cash sale/out of town buyers. In a case like that, since it is not an extreme outlier but more like a higher sale than typical, one could include it and give it very little weight. I would not put a sale in I gave zero weight to fpr reasons in above post, but for sales at lower or higher end of a reasonable range, I might include them but give them less weight. It's all relative to what other comps there are, whether to include a sale like that or mention it occurred and not use it.

No matter how much we try to pre emtpively address sales we did not use, somebody can always run data and ask about yet other sales...at some point a report is finished, and excluding certain sales is as much as a demonstration of judgement and analysis as including certain sales.
 
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