The Seattle Condo Market: Are Sellers in La-La Land?

Having looked at several downtown condo listings lately (we have a client shopping for one right now), it seems to me that there is a real disconnect between comp values and listing prices. Based on my purely anecdotal investigation, condos are selling for less than $500/sf; many if not most condos on the market are listed at more than $500/sf. My client was interested in one listed well north of $600/sf, with two recent sales in the same small building (about 20 units), one just above $300/sf and one in the $430’s.

The listing agent and I exchanged emails. I expressed my concerns about the property appraising at a price that would be acceptable to the seller given the list price (and the agent’s admonition that the sellers are “motivated but not desperate”). In response I got this:

I have never in my long real estate career, had a problem with an appraisal–even in today’s market. One yesterday came in at 10% over list. I promise to justify the pricing if we can come to mutual acceptance with the appraiser. I have a way of doing it that seems to work well.

My client just forward me a link to this blog piece about this very topic, which includes this passage:

For just about every condo appraisal, the most suitable comparables are sales from the same building. That can lead to some appraised values that may disappoint some sellers/owners. The biggest item condo owners need to understand is that the appraised value of their unit will be determined by the most recent similar sales available to the appraiser.

So I’m curious to hear the experiences or insight of others: Does there seem to be a disconnect between list prices and “market value”? Or, more directly, has anyone had a problem with a downtown condo appraising for a sale price?

Please note: I am NOT calling ANYONE out…

5 thoughts on “The Seattle Condo Market: Are Sellers in La-La Land?

  1. I have the same scenario playing out in a newer condo building in Downtown Kirkland. Given everyone in that particular building bought in 2007 or so..ALL of the recent comps in that particular building are short sales.

    A buyer wants a short sale price…without the headaches of going through a short sale…and they just may get it.

    This is the problem/question in my similar example. The original price at peak was $600,000 for all similar units in the building.

    3 sold as short sales for 50% off peak, due to the headaches and uncertainties of a short sale at $300,000, and took anywhere from 4 months to 8 months to close. (2 pending; 1 closed)

    1 REO offered at 40% off peak, sold for 35% off peak at $390,000 with multiple offers. Not closed yet. Should the appraisal for this multiple offer, NOT short sale, be held to the standard of a short sale price with no variance for the fact that it is NOT a short sale? (pending; not closed)

    New on market…not a short sale…not a bank owned…wants to sell at 25% off peak price at $450,000.

    Should the not short sale have to sell at a “50% down from peak short sale price” because the 3 comps are short sales?

    Should the not REO have to sell at a “35% down from peak REO price when it is not an REO?

    There are NO available short sales or REOs at present. 4 buyers are willing to pay $450,000 for a non-distressed owner sale. Is the answer they cannot buy it at “fair market value”, and must pay the “distressed property sale” price? Must the seller buckle to the appraiser’s insistence that all units in the building must now sell at short sale prices, even when they are not short sales, because he has 3 short sale “comps”?

    The condo building almost directly next to it, built a couple of years prior with NO short sales or REOs on record, has similar units selling at $450,000.

    Should the appraiser move next door to find the market value of non-short sales and not REO of a similar unit? Should they take comps from the next building and this building both OR should they only use the comps from IN the same building…that are all short sales and REO’s, when this sale is NOT a short sale or REO?

    There is no “right” answer to that question.

    Would the agent be “slimy” for making the argument that the appraiser should go 200 yards to the next condo building over, to include non-short sale comps, instead of ONLY using the “in building” short sales as comps? Shouldn’t he at least argue (as the agent for the seller) that the appraiser should at least include the next building over, NOT short sale comps, along with the short sale comps from in building?

    Yes…to answer Craig’s question…historically an appraiser uses “in building” comps IF THERE ARE SUFFICIENT “LIKE KIND” SALES “in building”…without moving to the next building. But are short sales actually “like kind” to a not short sale?

    Who should win that argument? Depends on a lot of factors. But clearly someone getting a short sale price for a similar condo that is not a short sale…doesn’t seem to be the right answer. A seller being forced to only sell at a short sale price…when they are not a short sale…is not the right answer either.

    My vote is the appraiser, who works for the lender, is well within his job duties to base the amount the lender will finance on the “in building” short sale prices. His job is to protect the lender…and not to “make the deal work” for the buyer or the seller or the agents. So yes…the appraiser can “call it” at $300,000. If the seller wants to sell at $450,000, he may need to find a buyer who can finance it based on an appraised price of $300,000, and pay the difference in cash.

    But if the listing agent can argue that the two $450,000 non short sales next door should be included, because they are similar units in close proximity…200 yards away, that would not be out of line either. The inference that the listing agent would be OMG! for even suggesting and even arguing that point is inappropriate. It is part of his job as Agent for the Seller to do that, as long as the basis for his argument is logical and factual. “Building next door” is clearly within appraisal standards. Should the agent for the buyer help argue that point…maybe. That’s between him and his buyer client.

    How the appraiser weights the 5 comps…3 short sales in building plus 2 non short sales next door…would still be the appraiser’s prerogative. He can weight the next building over at 40% of the equation and the 3 in building at 60% of the equation. He can do a lot of things to temper the ultimate impact of the two non-short sales next door. But ignore them entirely so as to stay “in building”? Not likely the right answer.

    Can he go within .25 miles or .5 miles and find 5 NON short sale comps, and use NONE of the short sales in the same building, because they are not “like kind” as to distressed vs not distressed? I see no reason why he can’t do that. Do you?

  2. This is a very interesting situation. We have a condo that under management in Seattle that she purchased at the hight of the market and it is upside down big time. She is having to turn it into a rental to try and make good@

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