How do Financing Terms Affect Value?

The same property can be sold on cash terms or it can be sold on Seller carry back (purchase money mortgage / land contract) terms with a below market interest rate and a with a low or nominal down payment.  Clearly more people in the market would be willing to pay a higher price for a parcel of real property with exceptionally favorable terms (as discussed) while fewer would be willing to pay cash.  There is a considerably higher risk for the seller if they accept non-cash terms with a small or no down payment.

Appraisers take care to consider comparable sales in their Sales Approach section of their appraisal reports that sold with cash or cash equivalent terms.  Sales with atypical, non-cash terms must be analyzed and adjusted if necessary.  Sales that include points or seller carry-back loans at below market interests rates can skew the actual price paid for a property.

Sales used for comparison in appraisal reports must also be arm's-length transactions, or sales that are not made between family members, friends or business associates.  Questionable sales, sales with contradictory information reported on them and sales that cannot be confirmed / verified are generally discarded by appraisers who believe that it is better not to use a sale than to use it and discover that there is indeed a problem with it.    

Tax-free 1031 exchanges generally include the use of cash taken from one investment and moved to another.  Again, appraisers analyze whether or not an exchange employed cash equivalent terms.

If you would like additional information on how financing terms affect value you can contact us by e-mail at grigdon@cox.net or call us at 1-702-568-6699 with your specific appraisal problem.  we will let you know if we can help you with you appraisal needs.

Commercial Real Estate Appraisals in the Las Vegas & Henderson, Nevada Area.