A question about real estate comps

I understand the basic premise: pricing according to what comparable houses sold for in a given area. But I have seen what I consider an unusual occurrence and would love some input from someone in the industry.

There is a middle class to slightly upscale neighborhood that happens to have a private college in its environs. The college had some financial problems and decided to quickly unload some house that it owned in the area. These houses were typically used for deans and other high placed employees. The houses were sold what one would typically call “under market value” due to the college’s need for quick turnover.
Note that the neighborhood does not typically have a high house turnover rate.

I would think that these college houses should not be included in comps calculations.
Firstly, there are/were a limited amount of them; once they were gone the artificially low price sales would end. Those low sales were not a reflection on the perception of the neighborhood; they really were a fire sale.

Yet I was told they count.

If I sold a house to my son for $10,000 in a rich neighborhood, should such an anomalous sale be factored into that neighborhood’s house prices?

Could a realtor/real estate agent/sales person please chime in?

Part of analyzing and choosing sale comps is deciding if they were the result of normal sale conditions, in accordance with the accepted definition of market value. The standard definition of market value is:

So, a sale that took place because of unusual seller or buyer motivations, or was not marketed for a reasonable time, should be very carefully investigated and considered, and possibly adjusted for this factor. Given your stated premise, the college had atypical motivations, and the properties were marketed for shortened exposure periods (conditions 1 and 3). The sales analysis can be adjusted for these factors (usually under a “conditions of sale” adjustment), or the sales can simply be discarded as not representative of typical market transactions. It is up to the appraiser to properly research, investigate, verify and analyze sales. Perhaps you misunderstand what happened, or the condition of the houses; or perhaps an appraiser did not properly research and adjust for atypical sale factors.

Who told you “they count”? Was this an actual appraisal, or just what a sales agent is telling you?

Yes, this was an actual occurrence and multiple agents in the area said that these “unusual” sales counted in the comp calculation.
I attributed this to “laziness” because it instinctually seemed wrong to count them.
Interestingly, our house (which was affected by this situation) appraised lower than I expected, and the mortgage appraiser was candid enough to admit that they used the comps price as a starting point.

I wouldn’t trust real estate agents when it comes to real estate appraisals. Two different jobs and disciplines. One is a sales job and the other is an analytical job. The agents you spoke with appear to be misguided and ignorant of appraisal practices and regulations.

Maybe a good time to challenge your property tax appraisal? If these college sales have depressed the market then you should be seeing a discount.

What he said. An agent is far more interested in selling your home than in getting top dollar.

Of course, appraisal is something other than a hard science. When I was going through a relo a few years ago and had a buyout option on my home, they had me use a realtor outside of my community for one of the 2-3 comps which would determine the buyout amount. Ours was the sort of community where subtle factors - such as being on a relatively busier street or backing up to the train tracks, not to mention interior finishes - could HUGELY impact what a house would sell for. This agent’s comps were definitely not comparable, and were ridiculously low. Didn’t matter, tho, as we sold in 3 days for (IIRC) some 25% over what she suggested was the house’s value. :rolleyes: The buyers had no issue financing at that sales price.

We get both extremes: Agents competing for the commission will give a property an unrealistically high value to get the work.Later, when it doesn’t sell, they suggest a lower price. In places where there is little or no competition, they will give it a low value to get a quick sale.

In these internet days, there are plenty of websites that will tell you what your neighbours houses have been selling for.

None of this matters a jot if you are not selling.

“Counted” for what?

By the county assessor in determining your property tax? If so, be happy, you’re paying lower taxes.

By your real estate agent in determining how much you should list your house for? If so, then tell them to pound sand. You are the person to determine the value of your house, not them. If you want to exclude the below market fire sale, then do so, and ask them to run the comps without it. The agent works for you.

Actually it does.

In my neighborhood we had a couple of houses that were distress sales and went for something like one-third less than they should have. The tax assessor counted the sales when setting our appriasal and our property taxes went down a tiny bit.

This depends very much on who is generating the comps, and why.

I used to work in a title office, and was one of the people to pull comps for realtors. To be brutally honest, this was a very slapdash process. Similar square footage, bed/bath count, quarter mile radius, pulls sales within the last year. Done. You might do a little editing if something is obviously way off, but basically, it was 2 minutes worth of effort, max. Now, this is just to generate a starting point for realtors to work with. It’s up to them to decide what is relevant and what is not, so don’t let them tell you that a given sale “has to count” because that’s hogwash.

Now, for appraisal for the purposes of mortgage valuation or taxes assessed, that’s a different story. There are rules for that, and they may well require including some bad data sometimes. I can’t speak to the details of that aspect of it.

If you are actually selling, those sales could still make a difference. “Fire sale” or no, the fact that many properties recently sold in your area may mean that anybody who was looking, or even thinking of looking for a house in your area has already found one.

It still comes down to supply and demand.

Real estate agent here, with 18 years experience in one state.

Your hypothetical example is a good one of a sale that would NOT count, as long as the appraiser knew the circumstances. That’s because it would not qualify as *an arms-length sale. * It’s not uncommon for parents to give their offspring a break on a property price.

As far as “does the special housing for college people” question goes, that’s a definite maybe. Is such housing limited to college people by law or practice? If by law, those properties should not be included in general price calculations; otherwise, they should.

I often get calls from appraisers regarding some property I sold recently, asking for the circumstances (which may not be obvious from public records or MLS data). “Was this an arms-length sale?” is the most common question. They also want to know if the seller had some reason to sell for an extremely low price. Since I’m not an appraiser, I don’t know how they factor that in, but it’s in there someplace.

If the house dumping by the college was for a finite number of properties, and they are now gone, they will have the greatest effect in other sales in the neighborhood only for a short time (maybe 1-3 years). Eventually, prices will stabilize – some people who bought them will realize an extraordinary profit by selling, especially after the capital-gains waiting period has lapsed. Perhaps they were bought exactly for that purpose. Soon, there will be no difference between those houses and others, location or not.

Any buyer who comes along will have access to the same data, so if every buyer thinks the fire sale houses should count, the seller will be the one pounding the sand.

You don’t have to agree with your agent, but it would be foolish to ignore his knowledge and advice. He might…just might…have more experience than you do in the field.

Sure they have access to the same comp data, but you have your realtor explain to their realtor that that particular sale shouldn’t be included for reasons xyz. Not that hard. It’s called a negotiation for a reason. And the realtor works for the client, not the other way around.

Increasing the supply is always going to lower prices, and any potential comp may have a unique story behind the buyer and the seller. If these houses were listed on the MLS and the final price was not bid up by multiple offers, it seems hard to say that that’s not the new market price.

It’s also possible that, having been institutionally owned, the properties had not been renovated or improved in a long time. The sales prices may have reflected the likelihood of the buyers having to invest in new kitchens and bathrooms.

We’re not disagreeing. However, it may be worthwhile to clear up a few possible misconceptions.

First, a Realtor[sup]TM[/sup] is someone who belongs to the National Association of Realtors. All Realtors are real estate agents, but not all real estate agents are Realtors, so the terms are not interchangeable.

The agent may or may not work for a client. It depends on the state regulations and the agreement, if any, between the agent and the buyer or seller. It’s also a common mistake to say that the agent works for the seller, but that is not always the case. In my state, all sellers are clients of an agent, but a buyer may be a customer or a client. The duties owed to the client and customer are not the same.

If you’re going to be picky about that, you should note that on their website they use the word in all caps and they use the registered trademark symbol with it, not the TM symbol. So it should be REALTOR®. And of course, there’s no requirement that we follow their preferences.

If there’s an industry that is in desperate need of disintermediation, it is residential real estate.

It’s been happening for a decade or so. People often sell their homes on their own. If you don’t want to do that, there are lots of options that allow lower than “standard” commissions. Commission rates are being squeezed lower by brokerages that advertise lower listing commissions, as well as services that basically put your listing online and on MLS for a flat fee, but don’t offer any other services. There are a lot more options now than in decades past.

Depends on whether your government has tax on property value… even land value only, because land value = improved value - cost to rebuild the improvements…
So partly the OP may be asking why the professors and senior administrators of the college, who may well be buying houses of the sort they lived in, should be getting the future tax reductions because of this one off sale event.

But perhaps the reduced valuation does make sense, perhaps it may be that if the area is flooded with people who could only just afford to pay that much, they won’t do improvements , they won’t do the renovations that the college didn’t want to pay for, perhaps they are slum owning landlords buying them … perhaps the glut of fraternity houses… it may well be that the area IS downgraded by the fire sale.