Verifying the Sale Before Relying On It

A closed sale is evidence of what a buyer paid. It is not, on its own, evidence of what a typical buyer would pay, because the circumstances of a sale can move the price well away from the market. The step between finding a sale and relying on it is verification: establishing that the transaction was the kind of sale the analysis assumes it to be. A CMA that relies on sales no one has looked into is the CMA most likely to produce a range that fails for reasons the analysis cannot explain.

Verification asks a short list of questions about each sale.

Was it a sale between unrelated parties, on the open market? Such a sale is one between unrelated parties, each acting in their own interest, with no pressure on either side and the property exposed to the open market. A transfer between family members, a sale from an estate to a beneficiary, a sale between business partners, or a sale between a landlord and a tenant may have closed at a price that reflects the relationship rather than the market. The public record shows the parties; the deed and the listing history show whether the property was marketed.

The label on a transaction does not settle the question; the circumstances do. An estate that listed the house on the MLS, held it on the market for several weeks and sold it to an unrelated buyer at the best offer received has made a sale between unrelated parties on the open market, even though the seller was an executor. An estate that conveyed the same house to a beneficiary, or to a neighbor who approached the family before it was ever listed, has not shown what the open market would pay. In the land records the difference often shows in the deed itself: a quitclaim deed, a deed reciting nominal consideration, or a grantee who shares the grantor’s surname calls for a closer look. None of these proves a non-market sale, and each is a reason to ask before the sale is used.

Were there seller concessions? A sale at $450,000 in which the seller paid $15,000 toward the buyer’s closing costs is not a $450,000 sale in the sense that matters. The MLS closed-sale record usually carries a concessions field, and the listing agent for the sale can confirm the amount. A concession that was not accounted for overstates the comparable. The adjustment is the concession’s measured effect on price; where no matched sales show that effect, the face amount is the starting point.

Concessions do not always appear in the concessions field. A credit at closing for repairs found during the inspection, a builder’s package of upgrades or a rate buydown offered on new construction, and personal property included in the price, such as the furnishings in a lakefront cottage or the tractor and generator conveyed with a rural property, all mean that the recorded price paid for more than the real estate. The remarks, the purchase terms recorded in the MLS and a conversation with the listing agent are where these surface. Personal property is read at what it would bring on its own, which is usually far less than its owner paid for it new.

Was the financing typical? Seller financing, assumable loans at below-market rates, or an unusual down-payment arrangement can move a price. The financing type is recorded on the closed listing and, for most sales, on the mortgage of record.

When did the buyer and seller agree on the price? The price was set on the contract date, the date the contract was signed by both the buyer and the seller, not the day the deed was recorded. The gap is commonly several weeks and can be much longer for new construction or for an estate sale awaiting probate court approval. In a market that is moving, a sale that closed in March may reflect the conditions of January. The listing agent records that date in the contract date field of the MLS record; the date the listing’s status was changed to pending is not the same thing, because the status change can be made days later. Where the MLS record does not show a contract date, the closing date is used and the analysis notes that it was. Any reading of how the market has moved since a sale is measured from the contract date.

Was the seller under pressure? Bank-owned sales, short sales, relocation-company sales, and sales from an estate that needed to close by a date can all reflect a seller who accepted less than the market would have paid given normal exposure. These sales are not excluded automatically; where they are common in the area, they are part of the market. They are used with the circumstance stated, and a set that rests on them alone is a warning sign, because each carries a circumstance that may have moved its price.

Prevalence is answered from the MLS: of the sales in the subject’s segment over the past year, how many were bank-owned or short sales. Where they are a handful among many typical sales, they are set aside in favor of the typical sales. Where they make up a meaningful share of the market, they are a regular part of what sells there, and they belong in the evidence with their condition noted, since a bank-owned house is often sold as is and in a condition the listing photographs only partly show.

Was the property exposed to the market? A sale that never appeared on the MLS, or that was listed and under contract within a day, may not have been tested by competing buyers. The listing history shows the days on market and whether there was a prior listing at a different price.

A short marketing time is not by itself a concern. In a market with little inventory, a house that drew several offers in its first weekend was thoroughly tested by competing buyers. The concern is the sale that was never offered to them: an office-exclusive listing sold to a buyer the listing agent already had, a sale recorded in the land records with no MLS history at all, or a listing that went under contract before showings began. Such a sale may still have closed at a market price, and the way to know is to ask how the price was reached.

Was the property at the time of sale what the record says it was? A sale that closed before a renovation, or after a fire, or with a tenant in place under a long lease, is a sale of a different property than the one the record describes today. The listing photographs and remarks at the time of sale, and the permit history since, answer this.

Condominium and multi-family sales carry their own versions of this question. A condominium sale may have closed with a special assessment that the seller paid off or that the buyer took on, and the two cases are different prices for the same unit. A two- or three-family sale with tenants in place reflects the rents and lease terms in force at the time of sale, while a building delivered vacant reflects a different buyer’s calculation. For new construction, the recorded price may include a lot premium and upgrades chosen by that buyer, and the builder’s base price for the model is a different figure.

Where the answers come from. The MLS closed listing (concessions, financing type, contract date, days on market, remarks, photographs); the town’s land records, kept by the town clerk (parties, consideration, deed type), along with the conveyance tax return filed with the deed, which states the consideration; the assessor’s field card (ownership history, deed book and page, any exemption that suggests a family transfer, and in many towns a code showing whether the assessor treated the sale as a qualified market sale); the building department’s permit history; and, for anything the record does not settle, a call to the agent on the other side of that sale. Verification of one sale takes a few minutes.

Worked example

A CMA for a 1,900-square-foot colonial in a suburban subdivision begins with three candidate sales, all in the subject’s competitive market area, all closed within five months, all similar in size and condition. Before verification they read:

Unverified, the three sales span $429,000 to $468,000 before any adjustment. Verification changes the picture.

Sale A’s MLS record shows a seller concession of $10,000 toward the buyer’s closing costs, and its remarks mention a credit at closing for a roof repair found at inspection, which the listing agent confirms at $4,000. No matched sales in the segment are available to measure the credits’ effect on price, so the face amount is the starting point, and the file notes it: $468,000 less $14,000, or $454,000.

Sale B was listed at $449,000, drew several offers, went under contract in four days and closed at $455,000 with conventional financing and no concessions. Its short marketing time reflects competition rather than the absence of it, and it stands as recorded.

Sale C has no MLS history, and the land records show a conveyance from an estate to a buyer with the same last name as the decedent. Neither fact proves a non-market sale. A shared surname can be coincidence, and a property can be sold without an MLS listing. Both are reasons to look further: the listing history, the probate file, or a call to the agent or attorney involved. Here the circumstances could not be confirmed, so the sale is not relied on as one of the three closed sales. It is listed as support, with the reason noted. The search turns up Sale D, a 1,950-square-foot colonial in the same market area that closed seven months ago at $446,000, verified as a typical sale, with its contract date about eight and a half months back. The MLS data for the subject’s segment shows prices essentially level over that period, so the time that has passed does not move it.

Verified, the three sales read $454,000, $455,000 and $446,000. The spread narrows from $39,000 to $9,000. The low end rises by $17,000 because a sale whose circumstances could not be confirmed is no longer setting it, and the high end falls by $13,000 because a concession and a repair credit are no longer being counted as price. Neither change came from an adjustment. Both came from knowing what the sales were.

How it applies. The office standard is that a sale is ordinarily not used in a CMA until it has been checked for the items above, and that any sale used with a circumstance attached carries a note saying so. The note is short: the source checked, what it showed, and what was done. “Seller concession of $10,000 per MLS and $4,000 repair credit confirmed with listing agent; no matched sales to measure the effect, so read at face amount, $454,000.” “Estate to buyer with decedent’s last name per land records; no MLS history; circumstances could not be confirmed from the probate file or with the agent or attorney; not relied on as a closed sale, listed as support.” A file kept this way answers the seller who asks why the lowest sale in the neighborhood is not among the three closed sales, and it shows anyone reading the CMA later what was known when the price range was set. For each comparable, the question is simple: what do we know about this sale beyond its price?