Home sale question - not sure I understand the situation (comparable sales, sales)

[Guitarmaan]

I'd appreciate any answers provided on this one, because I'm puzzled by it. To cut a story short, we bought here in September. The price was $130K. The previous owner had flipped the property, renovating it. I believe he paid something like $85K for it not long before we showed up. So obviously he made a very tidy profit!

The agent mentioned to us one of the reasons the house was still on the market was it wasn't easy to sell because the guy had flipped at such a high margin. Difficulty in getting loans on such a high flip? I didn't completely understand this at the time, and was simply thankful to get the exact home we wanted.

But my wife and I are discussing future moves (years away) and I wonder if this could create any problem for us in selling? Say we put it on the market for $150K and accepted an offer of $145, would the previous price history somehow cause a problem with loans for the buyer etc?

Does anyone recognise this situation? There must be some rule on price margins when selling? Maybe banks stay away from high price rises because they doubt the homes true value?

Anyone know?

[S. Chris Webb]

Price history has little to no effect on far-future values. What does have direct effect on market value is comparable (similar home in close proximity) home sales in the last 3-6 months of when the home is being sold. If a buyer is purchasing the home through financing, they will have to get an appraisal. If comparable values aren't close to the purchase price, either the buyer can cancel, the buyer can come up with the cash difference between the appraised price and the purchase price, or the seller can reduce the sales price. So, if you want to sell for $150, you will need the current market value based on comparable sales to be around $150. Or sell it to someone who wants the house bad enough to pay over market value with cash.

There was a time when virtually all banks required the home to be "seasoned" for 90 days from the time an investor purchased the property and sold it before they would finance it, whether the home sales price would appraise based on comparables or not. Although this may still happen with some loan programs, for the most part it is a thing of the past. That said, some Investors (I'm talking about the companies the banks and mortgage brokers represent) may still have proprietary rules on lending that are unforeseen. For example they may not allow a second appraisal on a home for 3 months, whether home values have gone up or not. Lenders are pretty cautious right now, but from what I'm seeing in the field right now is that as long as there are good comparables and the home is sound, (and the buyer qualifies) the loan will be approved. If you aren't planning on selling until the far future I wouldn't worry about it too much.

[DetroitN8V]

The only way I could see a prior sale of the same home coming into play would be if it was sold within the past 6 months. Then it would be fair game for the appraisal. Although even with that said, I don't think a home can be its own comp. The only thing you need to worry about is what comparable homes in the area are selling for and whether your selling price fits somewhere in there, assuming you're selling the home to someone that's financing it. If you find a cash buyer (who doesn't want an appraisal), sell it for as much as they're willing to pay.

[MN-Born-n-Raised]

Originally Posted by Guitarmaan

Does anyone recognise this situation? There must be some rule on price margins when selling? Maybe banks stay away from high price rises because they doubt the homes true value?

Anyone know?

I look a it this way... If I find a $100 bill on the floor I am not going to sell it for $80 just because I got it for free. The person before you paid $85K. He "found" multi thousands of dollars. Did he buy it at the courthouse steps?

[asufan]

Did you purchase with an FHA loan? Those (FHA flips) typically require 2 appraisals and may be a bit harder since they only require 3.5% down and lenders are skeptical houses can increase in value that quickly.

[Guitarmaan]

Originally Posted by MN-Born-n-Raised

I look a it this way... If I find a $100 bill on the floor I am not going to sell it for $80 just because I got it for free. The person before you paid $85K. He "found" multi thousands of dollars. Did he buy it at the courthouse steps?

I don't follow you

Originally Posted by asufan

Did you purchase with an FHA loan? Those (FHA flips) typically require 2 appraisals and may be a bit harder since they only require 3.5% down and lenders are skeptical houses can increase in value that quickly.

We purchased with cash. Perhaps others did require an FHA loan and that's why it was hard to sell the house?

[DetroitN8V]

Yes, the house probably would not have appraised for what you paid, hence the need for them to hold out for a cash buyer (you).

[S. Chris Webb]

"We purchased with cash. Perhaps others did require an FHA loan and that's why it was hard to sell the house?"

With cash you don't have to worry about appraisals and financing contingencies. If your house was on the market a long time it may have been overpriced for financed buyers, as it wouldn't have appraised due to lack of comps at that price.

Cash is king when there is lots of buyer competition. Most sellers will take a cash offer for $100K over a financed offer for $105, if they listed their house for $110 and it is worth $100K.

[Zippyman]

Some lenders have been requiring proof of repairs/improvements if a house sold in the past few months at a much lower value. After 6 months, what you paid is ancient history to another lender.

[MN-Born-n-Raised]

Originally Posted by MN-Born-n-Raised

I look a it this way... If I find a $100 bill on the floor I am not going to sell it for $80 just because I got it for free. The person before you paid $85K. He "found" multi thousands of dollars. Did he buy it at the courthouse steps?

Guitarmaan. My (confusing) note was to let you know that if the original buyer made a lot of $$'s you shouldn't feel bad because you bought at market. If the flipper bought at the courtroom steps he had additional risks. For instance not seeing the inside and hidden damages, maybe he had to evict renters etc. Those added risks are the reason people don't bid as high at the steps of the courtroom (versus on MLS).