Buyer in Watercolor

[Bobby J]

Therefore,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,318 sq ft in Watercolor is a comp because that is what someone offered and that is what the Seller accepted. If the builder was attempting to reduce his inventory, that's great. All of Walton County is attempting to do that. Should we wait until our inventory is substaintially reduced to start calling these transactions comps because they are selling for under what they used to? This is liken to, but maybe not as bad, Nortel stock selling at $89 per share and a few months later I picked it up at .64 per share. It is reality.

I agree that the $318 could be used as a comp but if a buyer presents a contract for a home in WC to his bank for $500 sq. foot, the $318 will not be looked at. Why? The buyer is making claim that this property is worth more because he/she is willing to pay more. The appraisers job is to now find comps using accepted practices that will work for this transaction with the new claim of value. It is very subjective.

 

[Smiling JOe]

I, too, agree that the $318/sf is a comp. When Thicket Circle closes in a month or so, it can also be used as a comp, and will look much better. I love how people get so hooked on the price per sq ft, that they forget to look at other factors like the total purchase price and type of building structures. Folks, it isn't all about the sq ft price. I will also remind you that there is much difference in the price of Mahogany flooring and cheep yellow pine. Add to that, the variance in all materials, design and quality, and you can have a wide range of costs per sq foot.

 

[Bobby J]

In the novel Real Estate for Dummies, it talks about an error in CMA's is often too much emphasis on Sq. footage price.

 

[Matt J]

In the novel Real Estate for Dummies, it talks about an error in CMA's is often too much emphasis on Sq. footage price.

Isn't that more of a handbook? Or is it different from all of these?

I could go on, but nobody likes a beaten dead horse.

 

[livingiSoWal]

I think I'll go buy that today.

 

[Smiling JOe]

Almost forgot to add that the house, 12 Thicket Circle, closed yesterday at $1,005,000 ($393 per sq ft). 72 Thicket Circle is pending, and I'm guessing that it will hit at least $393/sf, if not a little more.

 

[Bobby J]

The dummy series are really helpful from computers to the bible. I found the RE one was just some simple basic knowledge that we all forget about sometimes.

 

[SablePoint]

The "Market Value" of a piece of property is met when a buyer is willing to pay a price for a property which equals what a seller is willing to sell it for... WITH NO UNDUE DURESS.

A lot of sales today are DISTRESS SALES (where the seller is under duress). Appraisal guidelines, when using the Market (Sales Comparison) Approach to value properties, specifically address that distress sales are not valid comparables. Period.

This does not mean that every sale today, where a seller is losing money, is categorized as a distress sale.

But properties sold at auction to avoid foreclosure, etc., are clearly distress sales. Also properties sold because the seller's back is up against the wall financially, can also be categorized as distress sales. I think the sale of the $318/sq. ft. property being discussed would easily qualify as a distress sale for obvious reasons (perhaps the agents should have stated that it was a DISTRESS SALE rather than saying that it should not be used as a comp.)

There is good, logical reasoning for not including distress sales in a Market Value Appraisal.

There are also many other adjustments that an appraiser will make when preparing a Market Approach appraisal... to equalize for differences among the comparables that he/she is using. Some of these adjustments may not be readily apparent to a novice and can include whether the property was sold with favorable financing (say, owner financing, which would tend to make the property sell for a higher price)... or if the buyer paid full cash, which may cause the seller to offer a price concession because they know that the contract is not contingent on financing, and it may close more quickly.

Appraisers will attempt to equalize for everything... and they are provided with strict guidelines that they must follow. If they must go outside those guidelines, they must notate and justify it in writing in the appraisal. All large loans are also scrutinized by a secondary, "Review Appraiser," from a different company whose job it is to make sure that the appraisal falls within the guidelines and that there are no obvious inconsistencies.

With all of that said... Is the industry flawless? No.

 

[Smiling JOe]

...

But properties sold at auction to avoid foreclosure, etc., are clearly distress sales. Also properties sold because the seller's back is up against the wall financially, can also be categorized as distress sales. I think the sale of the $318/sq. ft. property being discussed would easily qualify as a distress sale for obvious reasons (perhaps the agents should have stated that it was a DISTRESS SALE rather than saying that it should not be used as a comp.)

There is good, logical reasoning for not including distress sales in a Market Value Appraisal.

There are also many other adjustments that an appraiser will make when preparing a Market Approach appraisal... to equalize for differences among the comparables that he/she is using. Some of these adjustments may not be readily apparent to a novice and can include whether the property was sold with favorable financing (say, owner financing, which would tend to make the property sell for a higher price)... or if the buyer paid full cash, which may cause the seller to offer a price concession because they know that the contract is not contingent on financing, and it may close more quickly.

Appraisers will attempt to equalize for everything... and they are provided with strict guidelines that they must follow. If they must go outside those guidelines, they must notate and justify it in writing in the appraisal. All large loans are also scrutinized by a secondary, "Review Appraiser," from a different company whose job it is to make sure that the appraisal falls within the guidelines and that there are no obvious inconsistencies.

With all of that said... Is the industry flawless? No.

Good info, SablePoint. I'd like to point out one thing. You cannot look at only the price per sq ft, and know if a sell was a distress sale. You might have a pretty good idea that it was the case, but many people sell for different prices for different reasons. That line of notes in the MLS is supposed to be reserved for tangible information, pertinent to the sale, according to the MLS. If a listing agent really wanted enter the info to most accurately convey the sale, she might add something like: "Bank forced sale," or, "sold for $300,000 below seller's purchase price." The idea is to be accurate, and not give a bunch of fluff. I, too often, see remarks like, "great sale, Sally," and that gives no tangible information about the sale. Appraisers and other Realtors, need to know specifics, not generalities.

 

[SablePoint]

Good info, SablePoint. I'd like to point out one thing. You cannot look at only the price per sq ft, and know if a sell was a distress sale. You might have a pretty good idea that it was the case, but many people sell for different prices for different reasons. That line of notes in the MLS is supposed to be reserved for tangible information, pertinent to the sale, according to the MLS. If a listing agent really wanted enter the info to most accurately convey the sale, she might add something like: "Bank forced sale," or, "sold for $300,000 below seller's purchase price." The idea is to be accurate, and not give a bunch of fluff. I, too often, see remarks like, "great sale, Sally," and that gives no tangible information about the sale. Appraisers and other Realtors, need to know specifics, not generalities.

I agree SJ. The price/sq. ft. is an entire other issue that has nothing to do with whether the seller was distressed or not. When I stated that it was obvious that it was a distress sale, I referred to what I consider to be obvious... it was a builder selling below cost. An appraiser, however, before declaring this a distress sale, should interview the appropriate parties to determine and document the facts.

The discussion on this board using price/sq. ft. as a basis of value sometimes borders on absurd. It's discussed as if that's the only determination of value. Whether a house is furnished or not, for instance, could conceivably add $25 or $50/sq. ft to what a buyer is willing to pay for a house (furnishings are not supposed to even count in the valuation of real property, but we all know it does reflect the ultimate sale price)... not to mention all of the other REAL PROPERTY assets/enhancements that make a house more or less valuable and desirable...