What Constitutes Arms Length Transaction?

[Vermonter]

How would a house sold at Auction fit into this discussion? I've heard appraisers say that auction sales aren't arms length and but more that they are. I consider them arms length, am I wrong?

Depends on whether you know the details of the auction.

What if it had a small ad buried in the classifieds of an obscure paper, an illegible sign on the property and only 1 person showed up to bid?

 

[LA Woman]

Are Homes Sold at Auctions "arms length"?

[quote=RobertJoseph2;1570060]Depends on whether you know the details of the auction.

What if it had a small ad buried in the classifieds of an obscure paper, an illegible sign on the property and only 1 person showed up to bid?[/quote]

Good point and my thoughts excactly. I dont know any appraiser that gets the detail of the auction. With that said, we have a huge amount of unsold inventory out here and I would venture to guess that most of the auctions are held by the big auction companies like REDC that hold open houses for the properties.

We do of course get all the disclosure documents and sales contracts. But I have yet to see anything about the auction company itself with those documents.

 

[Joe Booth]

I've heard appraisers say that auction sales aren't arms length and but more that they are.

How often are you putting auction sale comparables in your report? I never have but I've only been appraising for seven years.

I imagine that you would have to find out why the property is being auctioned. Is the marketing time reasonable at an auction? Is it actually on the market? Who are the buyers. Are they typical to your market?

These questions, and more, lead me to believe that it is not a good market sale for comparison. Unless the purpose of the appraisal is to determine your asset value for auction. Just thinking aloud.

In regard to REO properties. They are absolutely arms length transactions. Any question as to lower values is answered by simple economics, supply and demand. Who is questioning this? In some markets they are the only sales in the last three months.

Have a good day everyone. Going up to Newport Beach today. Not for Appraising.

 

[Metamorphic]

Seems like at an action the buyers would be very atypical. I have a hard time imagining your average Joe AND HIS WIFE, sitting at the auction with their number paddle making decisions about where they'll be living in 60 days. Sounds like a great way to get on the short track to divorce.

 

[LA Woman]

Metamorphic, have you gone to any of the auctions? Lots of people thinking they are "investors" buying on the cheap when in reality, only a few are getting "deals"....most that I have seen end up selling for market value. But I do have one on my desk that looks like they were able to get it under market, but I havent done the inspection yet.

I suggest that all appraisers that are in these type markets, spend the time to go to some of the open houses and then attend the auctions, a good education, but it takes all day.

 

[Joe Booth]

Excellent Advice!

 

[LA Woman]

Home Auctions in So. Cal.

REDC / USHome Auction dot com is having home auctions next mont/April for 11 areas in Southern California.

I'm planning on going to the one in my area. I've already attened several of the open houses that will be up for auction and know what they are
"worth".....will be interesting to see what these end up selling for.

NOTE: All homes up for auction have a "reserve" amount....they dont tell you that up front or in their books. You may win a bid only to find out at the end of the auction that your bid didnt meet the reserve so the deal is off and you just wasted an entire day.

 

[Metamorphic]

Metamorphic, have you gone to any of the auctions? Lots of people thinking they are "investors" buying on the cheap when in reality, only a few are getting "deals"....most that I have seen end up selling for market value. But I do have one on my desk that looks like they were able to get it under market, but I havent done the inspection yet.

I suggest that all appraisers that are in these type markets, spend the time to go to some of the open houses and then attend the auctions, a good education, but it takes all day.

I've never been to one, but even if as you're saying, you're seeing "investors" who think they're buying cheep, not buying cheep, but instead paying market value, that seems to be odd way to get to market value. Since the market value definition ususally includes the whole bit about "knowledgeably, and prudently" and not under duress. Its just hard to imagine that if the properties going at auction are not a deal, what's the motivation to go through the pressured auction process. It just seems aberrant for that to be a market price process.

 

[Stone]

I've never been to one, but even if as you're saying, you're seeing "investors" who think they're buying cheep, not buying cheep, but instead paying market value, that seems to be odd way to get to market value. Since the market value definition ususally includes the whole bit about "knowledgeably, and prudently" and not under duress. Its just hard to imagine that if the properties going at auction are not a deal, what's the motivation to go through the pressured auction process. It just seems aberrant for that to be a market price process.

There are many areas where auctions are quite common. You would do well to talk to some auctioneers and, as noted above, attend a few. Definitely don't fall into the trap of thinking auction equals deal.

Like all sales, verification of auction sales is important. For much of the rural land market I deal with, private sales are extremely common. They require similar verification that auction sales do.

 

[Carnivore]

I used to go to farm equipement auctions with my father in law. We would travel to the farm having ht eauction and look at every thing to see what we could pick up at possibly a good price.

During the auction we watched everyone we could that was bidding to try and learn who was working for the Seller and or the auctioneer. We did this so that when we started bidding we knew when to stop if they were running up the bids.

just a thought.