when a house selling lower than the market value!

[hastalavista]

Mr. Maramkhah,

I personally would not start asking questions of sellers and listing agents regarding why it is selling below market value.... The reason is that the act of so doing is expressing an opinion of value to someone other than your client...If you indicate "greater than contract price" you just gave an oral appraisal report... Refer back to USPAP confidentiality

Barry is technically correct. I'll add to this from a professional viewpoint (your relationship with real estate agents, etc.) is you should be careful how you phrase the question: Asking "Why are you selling the house so low?" could be very insulting!

But, from a practical viewpoint, you have a question and need to research the data to get an answer.
If I have a question regarding my subject, after I review the sales contract, TDS, listing history, and DOM, I will first ask the buyer's agent-
"Looking at the other sales, the sales contract falls near the low end of the sold range; Are there any circumstances or conditions that came up in your contract negotiations that impacted the contract price? Or, was it just the way the negotiations went?"
(no questions about "value" here, all questions are about the sales contract!)
I'll slightly modify if I'm talking to the seller's agent-
"Looking at the other sales, the sales contract falls near the low end of the sold range; Are there any circumstances or conditions that came up in your listing strategy that impacted the contract price? Were the sellers especially motivated or needed to quick sell? Or, was it just the way the negotiations went?"

When I call agents with questions regarding the sale price of a property that I am considering using as a comparable, I will follow a similar script depending on which agent I speak with.

Your question was specifically "what sort of action" should be taken in regards to writing the report. Here's my advice:
1. Do your best to determine why the particular property sold at what you perceive to be below market.
2. If you can find out, explain how you found out and what impact that makes on your analysis.
3. If you cannot find out, explain what steps you took to find out, and then how you are interpreting the sale based on the remaining market data.

Good luck!
(and, great question about "how to write it in the report"; far too many appraisal reports (IMO) are not written with sufficient explanation as to the analysis and conclusion. They do not take the reader from the start (the initial problem which is "how much is the house worth?") to the end (which is "the house is worth $X in my opinion").)

 

[Smokey Bear]

Ditto on Hal's comment, you can also ask for a copy of the CMA "to make sure you don't miss any comps" or ask how the listing price was set.

Also, make sure you have a copy of the TDS, that may explain things.

 

[Webbed Feet]

No I am not.

But, don't you think if I talk to agent or anyone except my client (who wouldn't have any clue), that would be crossing the line. (USPAP: Ethic rules: Confidentiality)

What I am asking, why sometimes UWs want me to state the property is selling under market value, don't they see it, that my value is higher than contract price in the report. Are they lazy or st....d, or there is something that I don't know. I would like to find out.

Mr. Maramkhah,

Let me rephrase your question so we are sure I am answering what you mean. Question: "Why do underwriters want appraisers to state or acknowledge a subject is selling under market value when the final conclusion is far greater than the contract price and they can see that?"

In my opinion this has happened due to the overwhelmingly lousy reporting skills of a huge percentage of real estate appraisers. .. Too many of whom have been trained to not discuss anything at all in their reports and send work out the door based on nothing but boiler plate comments... End results have become that readers of appraisal reports cannot understand if the appraiser has made a whopping error, typographical error, or if this is really the opinion of value... The lender will most likely be faced with all the participants in the transaction wanting to either rush in and add a bunch more seller paid financing concessions or just want to borrow more money... So the UW wants to know the appraiser really meant what they meant.

I agree with above posters there is nothing wrong with inquiring in a well phrased manner about it with participants to the transaction... However, my experience is timing is everything!... Making such inquiries days after an inspection has almost always resulted in my having to work around the people having all their red lights and bells go off as a reaction.

The posters after this post raise another very important aspect for an UW.. Have you just documented the market appreciation in your area has just turned negative relative to the historical comparable you are using, but failed to recognize it?..Are the active listings mostly all dropping prices below what properties were selling for in the last six to twelve months?.. Do those comparable need a negative time adjustment to accurately reflect market value today?

Explain it as best you can.. Place the explaination where it can easily be found (Your final reconcilliation)... Even consider bold font for it so it stands out.

Barry Dayton

 

[The Dog]

Been there, done that

Inspected a home in subdivision yesterday, in escrow at $195,000. Sale for the last three month in the subdivision are $200,000, $205,00 and $212,000 with the highest sale the longest time away. Same home and floor plan, same builder.

My subject is pending sale at $195,000. Do some research on active and pending listings and find 3 more similar size homes all in escrow at $195,000. This market has changed and is settling.

Make sure you check the present listings, pending sale price. There may be a reason for a lower asking/selling price

 

[Karl]

Beginning to see MANY of these. This is partially due to the increase of competing Listings as each day it appears to be more For Sale signs in town. In order to be assured of getting a "Quick Sale" (How many sellers actually want to wait for thier home to sell?) The best way to be the FIRST on the block to sell is sell for less than the others are listed. Those that bought 2-4 years ago did NOT Refi or go into debt can sell slightly below market & leave town comfortabally. Just did one No problem 165,000 Appraisal Seller wants to be in Hawai before June 1st. 12 days from FSBO sign posted till CLOSED for 145,000 Less seller putting 3,000 into closing cost. BUT seller is leaving Town with 72,000 in his pocket Bought home in 2000. Now he could have waited for the 160,-165 Sale. (Course he has 290+ listings to compete with NOT including FSBO). Buyer has a 0 down intrest only loan think the seller cares??

A sure Sale is much better than a MAYBE sale.

IF only I had waited: IF only I hadn't waited:

 

[Jungle Boy]

Sometimes just verifying the sale price with the parties will bring out the details of an unusually low price.
This happened to me last week. The buyer had one story, and the seller had another story. I read between the lines, and concluded that the seller is leaving town in a hurry to escape the hurricane season, and wanted a sure sale in a hurry.
I didn't enquire why the sale price was low, but both parties knew it was low, as it became apparent as soon as I verified the sale price.

 

[Fred]

I wouldn't say anything to anyonr. I don't normally use the purchase price as a comp. It's just data, like the census tract.

 

[Couch Potato]

Make sure you haven't missed something.

I have an assignment in progress where if I was doing it last month, I would have to go back to December to find closed sales as there were none earlier this year. I might have thought the sales price was below market value too, but I would have been wrong to make that conclusion. There was lots of sales activity in the 18 months before that time and no shortage of properties on the market. Take a good, long look at the active listings in the area. Fortunately for my current assignment, There some sales occurred in April. The example December sales for model matches to the subject are $515,000 and $495,000, but example April sales for model matches to the subject are $450,000 and $430,000. It is not that the April sales were below market, but rather that the market turned downward.

 

[Jungle Boy]

Agree with Greg.

Have run into that scenario with condos here. You have to look at the number of active listings and DOM to get a good idea of what's going on. I have based a few value opinions with more weight assigned to active listing data than closed sales.

 

[aussie ken]

Kiss

Hi again Nader.

You have recieved some excellant ideas in feed back on this thread but I really think fundamentally as long as you are happy on your analysis and all other things being equal. Then the Keep It Simple Stupid (KISS) principle is best.

A straight forward paragraph in your COMMENTS touching on the the underselling of the property or that it is excellant market buying should suffice.