Appraisal on "terms" sale - Posted by Jeff

Posted by Bill K. (AZ) on February 16, 2000 at 21:20:30:


Sorry, I can’t provide support for the concept you describe. I’ve never heard of this either. I’m an investor in Phoenix, not an appraiser. But, I’ve ordered many appraisals, and not once has an appraiser asked me about the “terms” I got on the property. Assuming that I’m following the lender’s rules regarding any seller carryback and down payment, the lender just wants to feel comfortable about the amount of money they’re loaning me on this property.

Appraisers and lenders don’t care about your “terms”. While a home with “terms” might be more valuable to YOU, those “terms” do nothing to affect the value in the lender’s eyes. If you don’t pay, they just want to know that they can get their money back from a foreclosure. If you get “terms” on a $100,000 home, and you think this increases the value to $110,000 in your eyes, will it sell for $110,000 if the lender has to take it back? Not likely. You see, the person who buys it from the bank won’t care what “terms” you got when you bought it. It’s really only worth $100,000 to him.

As I said, I’m not an appraiser, but the basic way appraisers calculate value is with comparables or “comps”. The appraiser will look for properties, similar to the subject property in age, size, location, amenities, etc, that sold within the past 6 months. Appraisers like to find 5 properties. They throw away the highest and lowest value and take the average of the remaining three. Then, they add value for amenities that aren’t found in the comps, and subtract value for things that detract from the property. For example, if your home has a pool, and the comps don’t, the appraiser might add $5,000. If you’re home backs up to a busy street, and the comps don’t, the appraiser might subtract 10%.

I hope this helps.

Bill K. (AZ)

Appraisal on “terms” sale - Posted by Jeff

Posted by Jeff on February 16, 2000 at 19:21:50:

I’m having trouble with an appraiser who has never heard that a home sold on terms increases its value. For that matter, the loan broker has never heard of it either (!). I thought it was common knowledge and accepted practice. Can anyone cite specific language/source/practice to support this concept?

Re: Appraisal on “terms” sale - Posted by Chris

Posted by Chris on February 17, 2000 at 02:54:24:


I also cannot agree with you on this one. If you offer a seller all cash for a quick close you can expect to get the house at a discount as compared to asking them to provide seller financing or waiting for a bank loan to be approved.

I believe you are referring to the sales tool used to convince sellers to provide seller financing which shows them they will end up with more cash in the long run.

For example-if a seller finances his free and clear $100,000 house at 7% interest over 30 years they will stand to make $228,790.77 for that $100,000 due to the interest. You would use this to convince the seller of the benefit of financing you. This does not mean the house is now worth this amount-it is still worth $100,000 at this time. The $100,000 is what comparable properties in the neighborhood have sold for within the last few months.

Value is determined by the market. CMAs or appraisals are determined by recent comparible local sales. Please check out this article for a more in depth explanation-

-Good Luck,Chris