Real Estate Investor · San Pedro , CA · Member since 2011 · 51 posts · 8 votes
I'm about to purchase a multi-family property about 3 blocks down from one I already own. The price I'm paying for it will no doubt create a decent comp amount relative to what I now owe on the first multi family which I'm about to do a cash out refi on. My question is, will it matter that I created the comp myself when the appraiser determines what my first property is worth for the refi? or is a comp a comp?
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Comps are comps, owner has nothing to do with it. As for comps on multi's, comps have less to do with value, what matters most is the income it generates. With a good income generator, the value goes up and vice versa.
Real Estate Investor · Toronto, Ontario · Member since 2010 · 413 posts · 114 votes
14y
I don't think they go into who owns the property. A comp is a comp. I know an investor who has rebuilt whole subdivisions. All his properties were used as the comps.
But not sure how multi-family comps work. They might go off a market cap for the area.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Comps are comps, owner has nothing to do with it. As for comps on multi's, comps have less to do with value, what matters most is the income it generates. With a good income generator, the value goes up and vice versa.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Same day. Once it closes, it is then a comp and can be pulled from title or MLS records by anyone with access to the records, including agents, appraisers, title reps, etc.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
14y
I don't think you'll have any problem with this.
That said, during the bubble, scams were pulled around here based on exactly this process. I know of at least two. In one case, a developer created a series of comps by "selling" three houses to friendly buyers at inflated prices. Then, working with a mortgage broker, they put naive buyer's (and mostly unqualified) buyers into other houses at inflated prices based on the "comps". In another case, a group of buyers did the same thing in an existing neighborhood.
If the purchase you're making is comparable to other sales, it should be fine. If your new purchase is above the other comps, and there are other comps, the appraiser may choose alternatives.
Rental Property Investor · Colorado Springs, CO · Member since 2010 · 476 posts · 305 votes
14y
There is a neighborhood in my market where we have created distressed short sale comps. I have about 10 short sales we've done here and the comps range from $90k-$110k. These are new houses that just need paint and carpet. The retail non distressed comps are going for $175k. All my short sales get approved in this neighborhood because all the distressed comps are mine. I love it. Im renting all these houses out and cashflowing $500-$700 per house. Im buying them with a fix and flip loan and then refinancing with a 30 year loan. My lender requires zero seasoning. Its awesome, i love it. Its my little secret, i dont share the neighborhood with anyone.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
14y
Originally posted by Will Barnard:
Same day. Once it closes, it is then a comp and can be pulled from title or MLS records by anyone with access to the records, including agents, appraisers, title reps, etc.
Just to expand on this, it may take more than a day or two, depending on how your MLS works. The big MLS in Atlanta requires the paperwork be submitted within 48 hours and then the MLS is generally updated within 24 hours, so it can take up to 3-5 days (depending on weekends) for a new sale to be reflected in the MLS.
Of course, if you have your own license, you can call the MLS directly, tell them that the property just closed, fax them the HUD, and they'll update immediately. Another advantage to be licensed.
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
14y
Good point J, not all local MLS systems are created equal nor are agents created equal. If the agent fails to promptly update the listing as sold, it could also take longer.
SFR Investor · IN · Member since 2008 · 137 posts · 24 votes
14y
Josh, you're a market-maker! There is no legal basis for discriminating comps based on ownership - you're in the clear! Your quality of upkeep will have significant influence on the surrounding niche, for better or worse, so make it good. If you have opportunity to pick up some SFR's in the zone, go for that too. I'll live vicariously, always quietly wishing to have such sway in a geo RE niche.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
Seems I'm always the bearer of bad news, sorta...
Appraiser will pull comps from MLS to selecte comps. When they are selected, one issue is to look up the sale and verify the terms of the sale, this is often done with the closer/title plant/listing broker as they all have the file. What the appraiser wants to know is who bought and sold and if there were any seller concessions, because if there were, the price would have to be adjusted.
Comps will also be viewed by the lender and they can certainly ask for (and I would) another comp that the borrower had no interest in. The other property will be viewed anyway as this is likely commercial and your other properties/liabilities will be considered. So keep that in mind as you may want to hold off on refi-ing the existing property.
Comps are usually taken as 2 in the same neighborhood and one outside but in a comprable neighborhood, having all 3 in the same neighborhood is not really a good idea for the reasons Jon pointed out, especially in new construction and developments as comps would manipulate the outcome.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
14y
Bill Gulley You mention "seller concessions" as affecting comps. I realize that a comp needs to be an arms length transaction without special circumstances surrounding the sale. However, practically every sale in my farm has seller concessions because sellers are most often agreeing to pay closing costs and sometimes more for the buyer. I don't see this affecting appraisals values where I am. The purchase price price stands as a comp regardless of whether or not the seller pays closings cost or pays for other items such as home warranties or carpeting allowances, etc.
Are there are any appraisers here who can comment on what type of seller concessions change the value of the comp from the purchase price?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
You'll find the basic requirements in the Uniform Standards of Professional Appraisal Standards that sets the guidlines for appraisers. Additionally, regulations are also set by regulatory agencies, FDIC, Comptroller of Currency and beyond that Fannie Mae, Freddie Mac, USDA, FHA, VA and SBA can and will go further by region or market area.
As to seller concessions, generally if concessions do not exceed 2 to 3 % of the sale price adjustments are not made but in the narrative section the appraisal will mention that closing costs were paid by the seller (in comp 2, for example), but if it is not significant it may not be.
This does not preclude the appraiser from investigating the terms of any sale. Not only being at arms length but by definition of market value, that the value was paid in cash or its equivelant.
Seller concessions such as paying settlement costs if common for the area are considered from the subjective analysis to arrive at market value if such do not exceed regulatory limitations. It is in the mind of the appraiser to consider if the price paid is in line for the area and market.
Any asset traded or included with a significant value must be looked at as to the market value of that asset on the date of settlement.
A good example in my area are boat docks. Realtors are generally not accountants and fail to mention the values agreed for other assets in a contract. Boat docks are in some areas considered real property, in others it is personal property and a property that carries a permit for a dock, but has no dock, is personal property unless it runs with title.
In farm communities you will often find equipment sales connected to the sale of the property as well as livestock. These side agreements must be looked at as well, that the value is at a reasonable market value for such items and that the RE sale was not a consideration for some heck of a deal. When I appraised properties for FDIC I had a heck of deal where cattle had been included and not disclosed.
I won't even mention commercial as other assets are often included.
Residential transactions can include club dues pre paid, green fees assumed by the buyer, one residence I did included fees for a private air strip and hanger storage!
Often the Realtor won't list other property in the MLS, again, like a boatd dock and boat, but say it is available. That would be a significant transaction, since in my area dock permits alone are about 10K!
When you get into higher valued homes or second homes in recreational areas, you can find all kinds of toys thrown in on a deal.
I have had all kinds of assets pledged in seller carry back deals, sometimes over collateralized, is that a concession of sorts where the seller would be more inticed to sell at a price than they would otherwise.....it could be.
Residential trades (or any property trade) will rarely have both properties being of equal value, is the difference paid equivelant?
I have had transactions where the buyer traded cars and one was a boat. The question becomes what was the value and did the seller pay to much for the items in the trade. Buyers have received large lawn tractors or mini farm types, that is something a lender does not want to finance. I sold a property to a car dealer friend of mine and took a Pathfinder in on the deal!
So a good appraiser will want to know if the buyer and seller had any other business transactions within a reasonable time frame from the sale of the RE.
Sorry this is so long, I hope those are sufficient examples and if other appraisers are on the thread, please jump in with your stories/comments!
Flipper/Rehabber · Bakersfield, CA · Member since 2008 · 3k+ posts · 3k+ votes
14y
I have a rule. If the same owner is owner or record or last seller of more than 3 of my comps I won't buy the house without mitigating the concern with a substancial concession... its frigging too easy to munipulate value falsely when the same person is sell in.
And I will never buy a house within a subdivision still in active status.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
Originally posted by Yan Peters:
Does anyone know if appraisers ever use pending sale figures from mls?
The market can ONLY be shown by closed sales, a pending sale or a listing may be mentioned in the comments to better inform the reader, but it will not be used in the analysis in the comp section.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
14y
For what it's worth, my previously sold houses routinely make up between 2-4 of the total comps used in our buyer's appraisals. In fact, a recent appraisal used my previously sold houses for the first three comps (they were all within 150 yards and sold within the past 6 months); so, at least the appraisers in my area are fine using comps owned by the same seller.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
14y
J, in past threads concerning appraisals you have indicated that you have a unique approach to dealing with appraisers and it has been successful for you. I owuld suggest that perhaps the appraiser is bending over backwards somewhat to please and the lender may be looking at compensating factors. Your reputation is probably known as well making those you work with more comfortable.
Just because an appraiser or some in your area do(es) it does not mean it is prudent or good practice. Enjoy the unusual allowances....
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
14y
Originally posted by Bill Gulley:
J, in past threads concerning appraisals you have indicated that you have a unique approach to dealing with appraisers and it has been successful for you. I owuld suggest that perhaps the appraiser is bending over backwards somewhat to please and the lender may be looking at compensating factors. Your reputation is probably known as well making those you work with more comfortable.
That may be a tiny part of it, but I think the other major factor here is that there are so few good comps in the areas where I'm selling that appraisers would rather use other comps of mine (because they are good) as opposed to bad comps from other sellers.
My guess is that if there were other good comps out there, appraisers would certainly prefer not to use all of mine over the others...it's just worth noting that appraisers aren't going to screw me (and hopefully others) by using bad comps when the alternative is using my own comps.