...it wasn't a regular warranty deed transfer and wasn't listed for sale. I wonder if it is an installment payment on the lot and a new house will go up there with the rest of the value paid after the home is completed. Just a guess.
True, but any appraisers for people in the future will look at this for a comp, right? Not the realtor (wanna be appraiser), but Joe Doe from Bank of America looking for comps.
Comps do not look at anomalies, appraisers list out sales that are most suitable in terms of sq/ft, price, location and date of sales. If this is somewhere in Eastern WA where there are 3 total property in the 10 mile radius, then this would be an issue. Since this is in populated Bellevue, it really doesn't matter.
This house won't effect anything, maybe fishy that it's seller carry back and that's about it.
Comps do not look at anomalies, appraisers list out sales that are most suitable in terms of sq/ft, price, location and date of sales.
This house won't effect anything, maybe fishy that it's seller carry back and that's about it.
So if there are 10 sales in the general neighborhood in the past year, but only 9 of them fit the mold of what the seller wants, isn't that defeating the purpose of comps? As a buyer, the $700/sq ft property is an anomaly when the neighborhood average of the last year is $550, so throw that one out... See what I'm saying?
You're obviously not an industry insider. Why would comps look at extreme anomalies to determine value, why would anyone consider 1 house out of 100 sold in the last year within 1 mile radius as a factor to lower the price by thousands?
what benefit does it serve to gather any details of this
One day I might be in a situation similar to the seller's or the buyer's situation. If I understand why this deal is beneficial I might be able to do the same thing one day. If the deal is bad for one of the parties, understanding why might help me avoid it.
Including that sale would contribute to lowering the median price for the neighboorhood, and if everyone did that, lowering it for the region. Now, lowering the price (within "reason"), on a house far above the median price, will actually RAISE the median when the below median houses are not selling.
So, this would be considered a FSBO? Therefore no commissions involved. Yet another reason to ignore it.
There is no rule that a house must sell for market value. Consider the possiblity of parents selling to kids on a owner contract for a great price to help out their kids. In this case it would be improper to use this sale as a comp. because of special circumstances.
You're obviously not an industry insider. Why would comps look at extreme anomalies to determine value, why would anyone consider 1 house out of 100 sold in the last year within 1 mile radius as a factor to lower the price by thousands?
Thankfully, I'm not. I'd probably vomit if I had to make a living by selectively choosing which particular properties are acceptable comps, throwing out any low priced sales to make sure I didn't lower the median.
Thankfully, I'm not. I'd probably vomit if I had to make a living by selectively choosing which particular properties are acceptable comps, throwing out any low priced sales to make sure I didn't lower the median.
You are an...ok, I'll refrain myself from calling names. It is obvious that you cannot grasp the concept of "extreme outliers" and "median" as oppose to mean. I am wasting my time here.
ps. if only you had a taste of the outrageous amount of commission we were making during the boom, you wouldn't be talking trash.
You are an...ok, I'll refrain myself from calling names. It is obvious that you cannot grasp the concept of "extreme outliers" and "median" as oppose to mean. I am wasting my time here.
ps. if only you had a taste of the outrageous amount of commission we were making during the boom, you wouldn't be talking trash.
I'm an idiot, right? Because I have morals and understand statistics. Crap!
You have 10 sales on properties of similar size, vintage, construction, etc in the same neighborhood... For $250, 400, 400, 425, 425, 425, 425, 450, 450, and 700 per sq ft. Mean $435, Median $425. You've declared the $250 property an extreme out lier because it was a "special" sale, but you've left the $700 property on the list. Now the Mean is $455, but the median stays the same. Throw the $700 property out and your mean is back to $425. So what do you tell the seller to sell for? Surely the highest "value"! And likewise you (RE agent) have no vested interest in telling the buyer to pay less.
What's the value of a comp if it's selectively chosen to ignore any sale which doesn't fit a certain mold? Again I'm asking from the hypothetical buyer/seller's perspective, not the RE agent looking to maximize his outrageous commission.
WSB,
A good, ethical appraise would also exclude the "example" of yours. This is not one to blame agents for, they've got plenty already they're guilty of..This one is pressure from the lender to the appraiser threatening his/her livelihood if the home doesn't appraise for a certain amount...With a declining market, I'm not sure how common it is now, but a few years ago in the several appraisal classes I took, appraisers were reporting that it was a very common practice to get this pressure from lenders.
One appraiser, Richard Hagar in North Seattle walked away from it and now refuses lender appraisers( and teaches real estate fraud).
Median home prices do not come into play when I prepare a market analysis. So your arguement about comparing homes using a "median" is a little weird. For a market analysis I compare like homes in the neighborhood and usually give the seller an appropriate range to price their home. I feel it's important for the seller to take responsibility in the price and to price his home according to his motivation to sell.
Also, I physically preview each home (that I can access) that I use in my market anaylsis - because as you know "you can't judge a home by it's picture". Condition, finish work, neighborhood, etc all play a role in pricing a home. Just because 2 homes are 3 beds 2 baths and 2000 sf each doesn't mean a thing in terms of being comparable until you analyze the details and amenities of each home.
Good practice would be to throw out the outliers at the top and the bottom of the list if they are clearly not indicative of "market value." Not sure why you'd throw out the low one and not the high one--that's just a bad practice. This is assuming you have other acceptable comps. When you don't then things get trickier.
What appraisers usually do with the oddball sales that they see is either not use them, or account for whatever oddball things were going on. A good agent should be doing this too but it requires research to figure out what was going on behind the scenes--not everyone researches past sales.
For instance, if there was seller financing or some other unusual terms, they wouldn't throw it out necessarily but they should try to figure out the value of it and adjust accordingly. The question is whether price has been unduly affected, and if so, how do you account for that.
FWIW, the definition of "market value" used by most lenders is:
The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States 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.
A real estate agent and an appraiser should, in theory, be trying to arrive at a similar number. Reason being, that even if you find a sucker willing to pay what you're asking, it still has to appraise. The appraiser is supposed to act as a sanity check and is supposed to be protecting the lender's interest. Buyer's agent is supposed to protect the buyer's interest by doing a CMA to determine market value on the property before the buyer writes an offer. Of course, not all of them do, and sometimes, it is next to impossible to do this anyway, such as in the case of some new construction. But theoretically, this should offset the tendency of listing agents and sellers to ask for the "highest possible price" rather than "most likely price".
BTW, not to muddy the waters but market value is just one of several types of value that an agent or appraiser might be trying to determine, depending on the circumstances of the sale. Liquidation value is another big one.
Oh, and JJL is also correct that actually seeing the homes is an important part of an agent's valuation of a home. Condition can account for a lot. And median has no bearing on anything. That is not how an appraiser arrives at market value, nor is it how an agent does. We look at all the comps and use them to arrive at market, but this is more art than science--we don't blindly point at the one in the middle and say "that's the price!"
WSB, very simply put. If there are 10 houses sold in your neighborhood with the same age, size and condition. 9 of them are within the same range, but there's 1 that drops more than 50%, therefore buyer/seller should pay 25% less than the other 9 houses and lender shouldn't lend because it isn't market value?
And no, you don't understand statistics. Extreme outliers are removed from both end.
Ira, jjl, SandyK - thanks for the intelligent responses.
The "market value" quote was interesting... it could be argued a substantial number of buyers (not just Seattle) did not meet one or more of those criteria. C'est la vie, I guess.
Comments
The house around the corner sold recently for $700/sqft. It doesn't make sense for this house to sell for under $250/sqft.
Ardell has a decent theory on RCG:
This house won't effect anything, maybe fishy that it's seller carry back and that's about it.
So what does the seller get out of this deal? It doesn't seem like a very good one to me. The buy just assumed their payments, right?
So if there are 10 sales in the general neighborhood in the past year, but only 9 of them fit the mold of what the seller wants, isn't that defeating the purpose of comps? As a buyer, the $700/sq ft property is an anomaly when the neighborhood average of the last year is $550, so throw that one out... See what I'm saying?
One day I might be in a situation similar to the seller's or the buyer's situation. If I understand why this deal is beneficial I might be able to do the same thing one day. If the deal is bad for one of the parties, understanding why might help me avoid it.
Including that sale would contribute to lowering the median price for the neighboorhood, and if everyone did that, lowering it for the region. Now, lowering the price (within "reason"), on a house far above the median price, will actually RAISE the median when the below median houses are not selling.
So, this would be considered a FSBO? Therefore no commissions involved. Yet another reason to ignore it.
I blame this blog for my enlightened cynicism...
There's no story here... move on.
Thankfully, I'm not. I'd probably vomit if I had to make a living by selectively choosing which particular properties are acceptable comps, throwing out any low priced sales to make sure I didn't lower the median.
You are an...ok, I'll refrain myself from calling names. It is obvious that you cannot grasp the concept of "extreme outliers" and "median" as oppose to mean. I am wasting my time here.
ps. if only you had a taste of the outrageous amount of commission we were making during the boom, you wouldn't be talking trash.
I'm an idiot, right? Because I have morals and understand statistics. Crap!
You have 10 sales on properties of similar size, vintage, construction, etc in the same neighborhood... For $250, 400, 400, 425, 425, 425, 425, 450, 450, and 700 per sq ft. Mean $435, Median $425. You've declared the $250 property an extreme out lier because it was a "special" sale, but you've left the $700 property on the list. Now the Mean is $455, but the median stays the same. Throw the $700 property out and your mean is back to $425. So what do you tell the seller to sell for? Surely the highest "value"! And likewise you (RE agent) have no vested interest in telling the buyer to pay less.
What's the value of a comp if it's selectively chosen to ignore any sale which doesn't fit a certain mold? Again I'm asking from the hypothetical buyer/seller's perspective, not the RE agent looking to maximize his outrageous commission.
A good, ethical appraise would also exclude the "example" of yours. This is not one to blame agents for, they've got plenty already they're guilty of..This one is pressure from the lender to the appraiser threatening his/her livelihood if the home doesn't appraise for a certain amount...With a declining market, I'm not sure how common it is now, but a few years ago in the several appraisal classes I took, appraisers were reporting that it was a very common practice to get this pressure from lenders.
One appraiser, Richard Hagar in North Seattle walked away from it and now refuses lender appraisers( and teaches real estate fraud).
Also, I physically preview each home (that I can access) that I use in my market anaylsis - because as you know "you can't judge a home by it's picture". Condition, finish work, neighborhood, etc all play a role in pricing a home. Just because 2 homes are 3 beds 2 baths and 2000 sf each doesn't mean a thing in terms of being comparable until you analyze the details and amenities of each home.
What appraisers usually do with the oddball sales that they see is either not use them, or account for whatever oddball things were going on. A good agent should be doing this too but it requires research to figure out what was going on behind the scenes--not everyone researches past sales.
For instance, if there was seller financing or some other unusual terms, they wouldn't throw it out necessarily but they should try to figure out the value of it and adjust accordingly. The question is whether price has been unduly affected, and if so, how do you account for that.
FWIW, the definition of "market value" used by most lenders is:
A real estate agent and an appraiser should, in theory, be trying to arrive at a similar number. Reason being, that even if you find a sucker willing to pay what you're asking, it still has to appraise. The appraiser is supposed to act as a sanity check and is supposed to be protecting the lender's interest. Buyer's agent is supposed to protect the buyer's interest by doing a CMA to determine market value on the property before the buyer writes an offer. Of course, not all of them do, and sometimes, it is next to impossible to do this anyway, such as in the case of some new construction. But theoretically, this should offset the tendency of listing agents and sellers to ask for the "highest possible price" rather than "most likely price".
BTW, not to muddy the waters but market value is just one of several types of value that an agent or appraiser might be trying to determine, depending on the circumstances of the sale. Liquidation value is another big one.
Oh, and JJL is also correct that actually seeing the homes is an important part of an agent's valuation of a home. Condition can account for a lot. And median has no bearing on anything. That is not how an appraiser arrives at market value, nor is it how an agent does. We look at all the comps and use them to arrive at market, but this is more art than science--we don't blindly point at the one in the middle and say "that's the price!"
And no, you don't understand statistics. Extreme outliers are removed from both end.
But Yes, you are an idiot.
The "market value" quote was interesting... it could be argued a substantial number of buyers (not just Seattle) did not meet one or more of those criteria. C'est la vie, I guess.