How to navigate if there are unfavorable comps
Try to make it short and concise if possible.
Four unit condo building, individual owners. Units 3 & 4 owners are out of country owners, knew each other, bought units when market was low, and rented them out. I own unit 2, also rent it out. Unit 1 is the only owner living on the premises.
The market is still hot, and the unit FMV in my estimation is worth 250K each. There is no other units like this available in the neighborhood on the market (except one will get to later). I had a tenant just moved out and am considering selling this unit, just when I was considering, I was told units 3 & 4 are going to be placed on the market. They came n the market the same day asking 220K and were both under contract in less than 1 day. I believe they underpriced.
There is another unit one street over, 2/1, similar aged building, not as updated, smaller footprint currently asking 285K but has been sitting for 2 weeks, I believe that one is overpriced.
So the agent I have been consulting said he believes this is a 250K unit and to list it at 250K. However when I told him two other units are under contract for 220K and is due to close in 2 weeks, he said I should list it now for 250K to get it under a contract before the other two units close.
I spoke to the two owners who are selling why they priced it at 220K? They said they bought them at 62K each in 2012, so they already made their money, and also they want to invest in somewhere else, and there are some deferred repair issues that they didn't want to deal with being out of the country so they had to disclose some issues. Bottom line, they were not trying to max out the price but wanted a fast hassle free sale.
Now my concern is not the demand, I believe there will be buyers at 250K. My problem is I think the buyer will not be an investor but someone who will live there, unless a snowbird from the north looking for a winter unit to spend a few months and pay all cash. If I am dealing with someone with a mortgage application, then a 250K offer with say a 25K down will mean a loan of 225K. If they apply for a mortgage and an appraiser makes a report, that appraiser will use the other units most recent sale price of 220K as comps. Same unit, same location same footprint. May be mine is more updated and nicer appliances with crown mouldings and hurricane shutters, but those features will not move the needle much. Then the bank will say I can loan you 176K (80% of 220K) and you have to being a down of 74K, well the buyer walks out from failing the financing contingency and I go back to "available".
This is the scenerio I am trying to avoid, and I don't see a good way out.
One option is to rent it again and wait a year or two, but I do not see the situation changes, those two comps will stick around a long time.
Ideas?
#4 All Forums Contributor
- Investor
- Northern Virginia
@Sam Leon
Tough spot to be in as those two units will weigh heavy in the comps. Unless you can show yours is completely updated and they had a lot of deferred maintenance not sure what else you can do.
@Sam Leon you're in a tough spot. I would still list it at 250k and see what happens. Maybe you end up at 235-240. Unfortunately, there's nothing you can do now about recently sold units and one that is on the market that is overpriced. It might be worth holding if the rental income is high enough and if you think that particular will appreciate further.
Quote from @Sam Leon:Typically appraiser use data from within 6 months, so holding for a year could help you if you're in no rush to sell. Also, if the property makes sense for investors, you could try and market more to investors, as they'd be far more likely to use creative financing, where as someone looking for a home will likely be using a conventional loan.
My problem is I think the buyer will not be an investor but someone who will live there, unless a snowbird from the north looking for a winter unit to spend a few months and pay all cash. If I am dealing with someone with a mortgage application, then a 250K offer with say a 25K down will mean a loan of 225K. If they apply for a mortgage and an appraiser makes a report, that appraiser will use the other units most recent sale price of 220K as comps. Same unit, same location same footprint. May be mine is more updated and nicer appliances with crown mouldings and hurricane shutters, but those features will not move the needle much. Then the bank will say I can loan you 176K (80% of 220K) and you have to being a down of 74K, well the buyer walks out from failing the financing contingency and I go back to "available".
This is the scenerio I am trying to avoid, and I don't see a good way out.
One option is to rent it again and wait a year or two, but I do not see the situation changes, those two comps will stick around a long time.
Ideas?
I still believe my property will get interest because there is nothing at this price point in the neighborhood, but obviously 285K one street over is overpriced.
In speaking with the other two units, even though they both are currently pending at 220K, one is no longer in contingency period (cash deal, listed on MLS), and the other is going through mortgage approval process, and this one was never listed on the MLS, the agent was going to put it up a few days apart, but people came calling on day one and when one unit sold, he just put the second one under the contract without ever listing it.
Which means when they close next month, one will be a MLS listed sale, and the other one a private sale.
I have often heard that appraisers only use data off properties listed on MLS for their comps, but a private sale with just a recorded price and sale date are not used as comps due to insufficient information to verify the nature of the sale (arms length of not) and the conditions of the properties. Is this true? If so there will then be only one data point instead of two of recent, identical sales. May help a bit, or not at all?
Finally, as I stated, there are pending repair issues in the other units which they opt not to fix and wanted fast as-is sales, obviously weighted into the price, how much I don't know. I am aware of ceiling delaminating and a big hole formed from roof leaks (roof is fixed), and interior door broken off etc...so I am debating if the current owner will allow me to take video tours now documenting these defects and general conditions as something the eventual appraiser can use as a reference? I can start on the outside showing building and walk to unit number on the door, open and go in with a continuous shot to prove this is indeed the place the video is recording. Would this help or not? Or the appraiser will not use these kinds of data, and if he/she did it will not be enough to move the needle from 220K to 250K for a lender. If it won't move the needle then it's wasted effort and time anyway.
#1 Foreclosures Contributor
- Real Estate Professional
- West Palm Beach, FL
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#1 Foreclosures Contributor
- Real Estate Professional
- West Palm Beach, FL
@Sam Leon If you show them the access hatch under the cabinet with the brushed aluminum handle…that will get your appraisal up there where it belongs.👀
You're on the right track and let me give you some more insight. I am a longtime appraiser, so I have a wee-bit of knowledge and experience regarding this.
Here's where you may want to focus on:
First Sale -
*All cash - this may've caused the seller to accept a lower sale price, knowing that an appraisal and loan contingency may not have been involved, therefore, reducing the uncertainty of the deal falling apart. You may ask the seller if there were any concessions offered to the Buyer (i.e. repair credits, etc). Ask them if there was an appraisal contingency, just to verify if that may have contributed to the seller's motivation to sell for less. Actually, ask them if there were ANY contingencies.
* Low marketing time - less than 1 day - this could be evidence of a few factors: the offer price being below market value, the seller being atypically motivated to sell, buyer/s being atypically motivated to buy, and/or the unit was not given enough time on the "open market" for the market (buyers/sellers) to determine fair market value, thereby, contributing to a below market price sale.
* Condition/Repair Issues - point out the inferior condition and "deferred maintenance" of the unit, to assist in the explanation of why it sold below market and why yours is worth more, since it is in superior condition. Paint the picture of the unit being in very poor condition, etc, and of course, photos, etc, would help. I would maybe do both a video and photos - you want to given them actual evidence they can either put in their workfile or their report to justify their opinion (i.e. inferior appeal of the comp unit), and a video is probably not the best for that. But, it may be good to show the appraiser (if they are interested), to prove you are not making this up. But, I would be an succinct as possible, just provide the important info, otherwise it may be overwhelming -there's a lot of other info for us to review and go over than just those comps.
Second Sale - NO marketing time
The same as above except you can explain how this one was NEVER marketed to the open market, never made it on the mls, etc. A good appraiser should see that unit has sold, even if it wasn't on the mls, but I would not be surprised if they do miss it.
Also, interview the agent for those sales and ask if there was any atypical motivation from either buyer or seller, and see if they will offer any info on specific repair issues, etc, many times they will have some insight which can be very beneficial.
FOCUS ON
1) Buyer/Seller motivation
2) Limited Market Exposure
3) Inferior condition and/or quality
You want to provide as much FACTUAL EVIDENCE to help the Appraiser justify their opinion, that those sales are below market. And if you waiting a year, they may still use 1 or both of those sales, since they are in the Subject project, but they may have an easier time with a higher value, since they may be able to rely on newer sales, but that is no guarantee.
******************
Here is part of the definition of Market Value that will be used.
- *buyer and seller are typically motivated;
- *both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
- *a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- *the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
Quote from @Wayne Brooks:Hi Wayne, haha you have a good memory! Definitely my brushed aluminum handle is what makes it "Elevated Living" on cloud 9 and will beat the comps!
@Sam Leon If you show them the access hatch under the cabinet with the brushed aluminum handle…that will get your appraisal up there where it belongs.👀
Quote from @Brad S.:Thank you so much for the detailed reply.
You're on the right track and let me give you some more insight. I am a longtime appraiser, so I have a wee-bit of knowledge and experience regarding this.
Here's where you may want to focus on:
First Sale -
*All cash - this may've caused the seller to accept a lower sale price, knowing that an appraisal and loan contingency may not have been involved, therefore, reducing the uncertainty of the deal falling apart. You may ask the seller if there were any concessions offered to the Buyer (i.e. repair credits, etc). Ask them if there was an appraisal contingency, just to verify if that may have contributed to the seller's motivation to sell for less. Actually, ask them if there were ANY contingencies.* Low marketing time - less than 1 day - this could be evidence of a few factors: the offer price being below market value, the seller being atypically motivated to sell, buyer/s being atypically motivated to buy, and/or the unit was not given enough time on the "open market" for the market (buyers/sellers) to determine fair market value, thereby, contributing to a below market price sale.
* Condition/Repair Issues - point out the inferior condition and "deferred maintenance" of the unit, to assist in the explanation of why it sold below market and why yours is worth more, since it is in superior condition. Paint the picture of the unit being in very poor condition, etc, and of course, photos, etc, would help. I would maybe do both a video and photos - you want to given them actual evidence they can either put in their workfile or their report to justify their opinion (i.e. inferior appeal of the comp unit), and a video is probably not the best for that. But, it may be good to show the appraiser (if they are interested), to prove you are not making this up. But, I would be an succinct as possible, just provide the important info, otherwise it may be overwhelming -there's a lot of other info for us to review and go over than just those comps.
Second Sale - NO marketing time
The same as above except you can explain how this one was NEVER marketed to the open market, never made it on the mls, etc. A good appraiser should see that unit has sold, even if it wasn't on the mls, but I would not be surprised if they do miss it.
Also, interview the agent for those sales and ask if there was any atypical motivation from either buyer or seller, and see if they will offer any info on specific repair issues, etc, many times they will have some insight which can be very beneficial.
FOCUS ON
1) Buyer/Seller motivation
2) Limited Market Exposure
3) Inferior condition and/or qualityYou want to provide as much FACTUAL EVIDENCE to help the Appraiser justify their opinion, that those sales are below market. And if you waiting a year, they may still use 1 or both of those sales, since they are in the Subject project, but they may have an easier time with a higher value, since they may be able to rely on newer sales, but that is no guarantee.
******************
Here is part of the definition of Market Value that will be used.
- *buyer and seller are typically motivated;
- *both parties are well informed or well advised, and each acting in what they consider to be in their own best interest;
- *a reasonable time is allowed for exposure in the open market;
- payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
- *the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
I will go ahead and try to get some pictures and videos if possible to document the other property's conditions at sale.
I just don't know if the buyer's hired appraiser will talk to me. I do think there is no harm to try and provide information that may be relevant to his client.
Quote from @Sam Leon:Good Point, so let me clarify something so you can approach the appraiser properly. We (appraisers) cannot talk about our OPINIONS with anyone other than our client. the client for lending transactions is the Lender, not the Buyer. But, we (appraisers) can discuss FACTS. So, just approach them that way, with facts. And let them know you just want to provide some facts to them, they may not be aware of. Remember, you are trying to provide factual information to help them form their opinion.Thank you so much for the detailed reply.
I will go ahead and try to get some pictures and videos if possible to document the other property's conditions at sale.
I just don't know if the buyer's hired appraiser will talk to me. I do think there is no harm to try and provide information that may be relevant to his client.