Why would somebody sell a house for a lot less than it's worth?

Here’s the situation:

I periodically like to check to see what my house is worth. Basically, I do this by looking in my townhouse community, checking what they are assessed for for tax purposes and comparing that to recent selling prices. Within the past year, there have been about 4 sales in the complex, all for $30-60K above the tax assessed value.

I knew the family next door were looking to move. In January, one day a moving truck showed up and they appeared to be moving out. I didn’t see any For Sale signs or signs of open houses etc. I didn’t see the family but people did come and go.

A few weeks ago, I noticed a new person in the driveway and a lockbox on the railing. The man told me he was a property manager who was upgrading the home so it could be sold. Since that time, there have been carpet installers, appliance deliveries, etc. I figured that they were upgrading to get a better sales price. I knew that they had already done the big-ticket items (new roof, all new windows) so there couldn’t have been too much to do. The trucks have left, so I wanted to look to see what they were listing the place for. When I checked the records, I found that the family had already sold the house in January, for $120K less than the assessed value. The buyer is listed as living in Pennsylvania (we are in Virginia).

A few theories for what was going on came to mind:

  1. They had a job change or a family emergency and had to move quickly and sold at a loss.

-A quick google showed that they not only were staying in the area but apparently had purchased a much more expensive house for 40% more, and then had apparently torn down the structure and built a new house on the lot bringing the new value to >$1 million more than the sale price of the first home.

  1. They couldn’t afford the mortgage payments so had to unload it quick.

-Unlikely, since they bought a much more expensive house as above.

  1. They didn’t check appropriate comps and listed it for much less than it was worth.

-Not likely since these are fairly intelligent Ivy League-educated lawyers.

  1. The house was a relative fixer so sold for a lot less than assessed value because so much work needed to be done.

-As noted, they already did the big-ticket items. I can’t imagine there was more than a few thousand in upgrades and even a totally dated home in this area shouldn’t sell for $150K less than comparable houses.

  1. They couldn’t find a buyer so had to sell at a (relative) loss.

-There is a big demand in this area. I get unsolicited flyers from people wanting to buy in this complex. As noted, 4 houses have sold in the past year (out of about 40), all for significantly over the assessed value. I can’t imagine the bottom dropping out so soon.

Anybody have any other theories? I feel like my house value just dropped $100K since this is the house next door and it is screwing up the comps royally. Even the county property tax site has a footnote on the sale saying it is not comparable with comps in the area. I just hope that this guy from PA (? flipper) sells it for a better price.

maybe they sold it to a relative at a discount.

Are you certain they paid for the upgrades, not the puchaser, that would make more sense. Buy it for way under value, pour money into renovations?

Other than that, the only other thing I can think of is money laundering?

Perhaps they wanted to sell the house at a loss so they could claim a write-off for tax purposes?

Or maybe they were coerced into selling the house at a ‘friendly price’ by organized crime?

But I think Procrustus’s explanation is the most plausible.

Did they sell it through a realtor, or directly to the property manager?
Does the assessed value have any relationship to actually selling value? Here in California the answer is often no for any houses you’ve owned for a while. Is $120 K a major percentage reduction from the assessed value?

My only additional guess is that there is some dark problem with the house (in NJ it might be radon) that would have taken forever to have fixed. Getting someone else to do it was worth it to them. But I don’t like that explanation any better than the ones you’ve offered already.
Another is that they absolutely positively needed the money for this wonderful house they bought - but that seems odd too.

There are reasons to list for a quick sell other than some kind of job or family emergency. For example, let’s say their new house is the house of their dreams. They can afford it, but they can’t afford it and their condo at the same time. If they don’t buy the house of their dreams right now, someone else will buy it first. So it could be worth taking a loss on their condo just to make the other house possible.

Another WAG: You say that they’d done some big ticket improvements already… maybe they did it wrong? For example, electrical work that isn’t up to code. During efforts to sell the house, an inspector found the not-to-code issues and it was determined that they couldn’t be fixed cheaply. At that point, it’s spend a fortune to fix it yourself, or give someone a big discount and let them fix it.

Other than those, there are millions of reasons why you might make a below-market sale to related parties like family, even if it’s indirectly.

I don’t think it’s family. The purchaser appears to be making the upgrades. I just don’t see how there could be enough needed to upgrade to justify such a low price. This is not a family that let the house fall apart; they’ve clearly been doing a lot of maintenance and improvements all along.

As for radon, shoddy electrical, etc you have now got me extremely worried. This is a townhouse. We share a wall. I don’t want those things affecting my property values. As to the percentage, townhouses in this complex have been selling for $500-700K so $120K less than the other similar townhouses is a lot (it’s an interior unit so it’s at the lower end; end units sell for more).

They just didn’t like the place and bailed. I have often said that if anything happens to my wife, after a respectable period of time I would probably move. OK – my bags would be in the back of the hearse. But I figure that’s respectable enough.

If she does go first, dead damn serious, the first 10 grand can have this place. I may only move across the street or across the state; but I will NOT be staying here.

As noted above, selling price has generally been $30-60K above assessed value for the properties sold in the past year.

Also, it doesn’t seem that they were rushing to buy the house of their dreams since they bought an older home in a better location, tore it down and built a brand new bigger better one on the lot.

I was thinking that they needed to sell in order to afford their bright shiny new home but I’ve been living next door and I saw no signs that they even tried to sell until the new purchaser showed up. Usually, you’ll see signs, lockboxes, open houses etc if somebody is trying to sell.

I’m just worried they know something I don’t. Either that or they couldn’t stand living next to me and had to get away ASAP and it was worth the loss to avoid me. Not that I’m paranoid…

In the United States, you cannot claim an income tax write-off on personal use property.

Here’s my possible scenario:

They thought there was something irresistable about buying the new house at that time (maybe a sweet deal, maybe it was they house they always wanted, maybe they wanted a bigger house so they could move in an elderly relative who couldn’t live independently anymore, whatever.)

So they made the offer, got accepted, and got a quick closing.

Then they realized they didn’t want to be carrying two mortgage payments for an indefinite length of time plus pay to fix up the townhouse to get it ready for sale.

So they sold it to one of those “I will buy your house for cash” types even though it meant going below market value.

Also, you don’t mention it, but how much did they originally pay for the townhouse? If they paid, say, $200K for it originally and could sell it for $400K, especially if they’d already paid off most of the mortgage, that may have been enough for their needs.

If I’m doing the math right, they sold at roughly 25% below market value, which really isn’t too cheap for one of those quicky sale deals.

Maybe they ran into a chunk of cash (inheritance? major bonus?) and wanted to offload their townhouse and move in to their mansion as quickly as possible. $120k might not seem like much money to them.

Maybe something tragic happened in the house, and they felt like taking a loss to get away from the memories.

Maybe they had some kind of crazy up and down- a job loss followed by a major job upgrade.

Nobody wants to live next to a psycho bunny. Not without a huge discount.

Well if your statement is accurate re them being urban Virginia “intelligent Ivy League-educated lawyers” these people would quite conceivably be pulling in well over 1 million a year as a couple. The value of their time vs the opportunity cost in staying if they are moving somewhere more professionally conducive could easily exceed the 100,000 or so they would lose by selling quickly to an investor.

Ghosts, baby. Nobody likes living with that spooky shit.

They bought a large plot, tore it down, building their dream home.
How often would a chance like that come up in that part of town?
If they’re highly paid professionals, 100 grandish might not be enough of an obstacle to make them not do that.
You say this new property will be million plus. A quick, low, sale might have been the sensible thing to do.

Sometimes people are just in a hurry. The guy I sold my house to was in an unexplained rush to close and move in. He made an offer and when I turned it down he immediately bumped his offer up to my asking price. He wanted to close ASAP, was pre-approved for his mortgage, and offered to skip home inspection, etc. It seemed fishy, but that was six or so years ago and there have been zero repercussions.

Interestingly, I never met the dude. I presigned some papers and gave my realtor power of attorney to sign the rest for me at closing.

A Bird in The Hand…

It’s also possible that they really sold it for more than the price you see listed in the official records. A lot of professional real estate wheeler-dealers will pay some of the money “under the table” - possibly via an attached contract for some other goods or services - for various reasons, and these won’t show up in the real estate records.