Chapter 3 - Sales Confirmation and Stratification

Sales Confirmation Process

The sales confirmation process of discovery, collection, listing, and confirmation of sales is essential to property valuation. A sales confirmation program that is an ongoing, well organized process is the most vital element in the collection of accurate sales comparison data for the appraisal of all property. Reliable sales data are necessary to effectively apply all three approaches to value and to develop a quality assessment-ratio analysis program.

Discovery and Collection of Sales

All county assessors are required to gather sales derived from recorded deeds from the county clerk and recorder within the eighteen-month period ending on June 30th of the year prior to a year of change in the level of value pursuant to § 39-1-104(10.2), C.R.S. If a sufficient sample of qualified and confirmed sales cannot be collected from within the eighteen-month period, data must be collected from as many preceding six-month periods within the five-year data gathering period, as are necessary, to obtain sufficient qualified sales to acquire adequate comparable valuation data. In any case, all sales must be time adjusted to the end of the data gathering period. For information on how to calculate a time adjustment, please refer to Chapter 2, Appraisal Process, Economic Areas, and the Approaches to Value.

While assessors are required to collect at least eighteen months of sales data, it is recommended that the assessor consider confirming sales on a continuing, annual basis so that sales data will always be available for each five-year maximum data collection period. Availability of five years of sales will be of great help in determining market trends, deriving associated adjustment factors from analysis of those market trends, and in the development of depreciation tables.

The assessor must gather a sufficient number of confirmed/qualified sales to complete the necessary market and statistical analyses in a defensible and sound manner. The confirmed/qualified sales will also be used to substantiate adjustments for time, location, and physical condition.

The assessor should continue to gather qualified sales until a minimum of 30 such sales are available for reliable statistical analysis for a property subclass or for an economic area, if possible. If sufficient sales within the five-year period are not available within an economic area, the assessor should consider sales from other similar economic areas. Calculation of statistically significant minimum sample sizes is described in Chapter 8, Statistical Measurements.

Statutory Requirements

Property valuation must be determined by consideration of the applicable approaches to value.

Actual value determined - when.

(5)(a) All real and personal property shall be appraised and the actual value thereof for property tax purposes determined by the assessor of the county wherein such property is located. The actual value of such property, other than agricultural lands exclusive of building improvements thereon and other than residential real property and other than producing mines and lands or leaseholds producing oil or gas, shall be that value determined by appropriate consideration of the cost approach, the market approach, and the income approach to appraisal. The assessor shall consider and document all elements of such approaches that are applicable prior to a determination of actual value. Despite any orders of the state board of equalization, no assessor shall arbitrarily increase the valuations for assessment of all parcels represented within the abstract of a county or within a class or subclass of parcels on that abstract by a common multiple in response to the order of said board. If an assessor is required, pursuant to the order of said board, to increase or decrease valuations for assessment, such changes shall be made only upon individual valuations for assessment of each and every parcel, using each of the approaches to appraisal specified in this paragraph (a), if applicable. The actual value of agricultural lands, exclusive of building improvements thereon, shall be determined by consideration of the earning or productive capacity of such lands during a reasonable period of time, capitalized at a rate of thirteen percent. Land that is valued as agricultural and that becomes subject to a perpetual conservation easement shall continue to be valued as agricultural notwithstanding its dedication for conservation purposes; except that, if any portion of such land is actually used for nonagricultural commercial or nonagricultural residential purposes, that portion shall be valued according to such use. Nothing in this subsection (5) shall be construed to require or permit the reclassification of agricultural land or improvements, including residential property, due solely to subjecting the land to a perpetual conservation easement. The actual value of residential real property shall be determined solely by consideration of the market approach to appraisal. A gross rent multiplier may be considered as a unit of comparison within the market approach to appraisal. The valuation for assessment of producing mines and of lands or leaseholds producing oil or gas shall be determined pursuant to articles 6 and 7 of this title.

§ 39-1-103, C.R.S.

The assessor is allowed to use sales of comparable properties when determining actual value.

Actual value determined - when.

(5)(b) If, having considered the three approaches prescribed in paragraph (a) of this subsection (5), at the sole discretion of the assessor the use of the three approaches to value cannot accurately determine the actual value of any parcel of taxable property, or in the opinion of the assessor the application of the three approaches to value does not result in uniform, just, and equalized valuation, then the actual value thereof shall be determined by comparison of the surface use of such property with a similar surface use.

§ 39-1-103, C.R.S.

A representative body of sales is required when considering the market approach to appraisal.

Actual value determined - when.

(8) In any case in which sales prices of comparable properties within any class or subclass are utilized when considering the market approach to appraisal in the determination of actual value of any taxable property, the following limitations and conditions shall apply:

(a)(I) Use of the market approach shall require a representative body of sales, including sales by a lender or government, sufficient to set a pattern, and appraisals shall reflect due consideration of the degree of comparability of sales, including the extent of similarities and dissimilarities among properties that are compared for assessment purposes. In order to obtain a reasonable sample and to reduce sudden price changes or fluctuations, all sales shall be included in the sample that reasonably reflect a true or typical sales price during the period specified in section 39-1-104(10.2). Sales of personal property exempt pursuant to the provisions of sections 39-3-102, 39-3-103, and 39-3- 119 to 39-3-122 shall not be included in any such sample. (II) Because of the unique characteristics and limited number of oil shale mineral interests, a minimum of five arm’s-length sales of reasonably comparable oil shale mineral interests shall be required to constitute a market for purposes of utilization of the market approach to appraisal in determining the actual value of nonproducing oil shale mineral interests.

(b) Each such sale included in the sample shall be coded to indicate a typical, negotiated sale, as screened and verified by the assessor.

§ 39-1-103, C.R.S.

All qualified sales are to be used in the market analysis, but when utilizing a sales ratio analysis
there are certain statutory requirements.

Actual value determined - when.

(8)(d) In no event shall a sales ratio be established or utilized for any class or subclass of property unless and until there have been at least thirty such coded, typical sales or at least five percent of all properties in such class or subclass within the county have been sold and verified by the assessor as coded, typical sales, whichever amount is greater. When such minimum requirement has not been met but typical sales within any such class or subclass indicate that valuations in the class or subclass are too high or too low, such fact shall be reported to the state board of equalization, which board may order an independent appraisal study in such county.

§ 39-1-103, C.R.S.

The assessor is required to use sales of real property only in the valuation process.

Actual value determined - when.

(8)(f) Such true and typical sales shall include only those sales which have been determined on an individual basis to reflect the selling price of the real property only or which have been adjusted on an individual basis to reflect the selling price of the real property only.

§ 39-1-103, C.R.S.

For the purpose of determining residential documentary fees, personal property is not deducted from the sales price. If personal property value is listed on the Real Property Transfer Declaration (TD-1000), the assessor must adjust the sale price per § 39-1-103(8)(f), C.R.S. Evidence of a separate consideration for commercial or industrial personal property must be submitted prior to deduction.

Documentary fee imposed – amount – to whom payable.

(5)(a) For the purpose of determining the documentary fee in accordance with subsection (2) of this section, the amount of consideration paid for the grant or conveyance of residential real property, inclusive of liens, charges, and expenses, is the amount listed on the grant or conveyance document; except that, if there is no consideration amount listed on the grant or conveyance document or the amount listed is five hundred dollars or less, and there is a related declaration filed in accordance with section 39-14-102, then the amount of consideration paid is the total sales price listed on the declaration.

(b) In determining the amount of consideration paid for the grant or conveyance of commercial or industrial real property, inclusive of liens, charges, and expenses, the total amount of the sales price to the purchaser shall be deemed to be paid for the grant or conveyance of real property unless evidence of the separate consideration paid for personal property is submitted as shown on the purchaser’s use tax return as filed with the department of revenue or unless evidence of such separate consideration is shown on the declaration filed pursuant to the provision of section 39-14-102.

§ 39-13-102, C.R.S.
 

Case Law Relative to Sales Confirmation

The Colorado Supreme Court, in Board of Assessment Appeals, et al., v. E.E. Sonnenberg & Sons, Inc., 797 P.2d 27 (Colo. 1990), ruled that if evidence of comparable feedlot sales outside the county and within the relevant market is properly presented to the Board (CBOE), such evidence must be given further appropriate consideration. Based on this decision, assessors should consider comparable sales of property outside their county if it can be established that these sales can be considered to be within the subject property’s relevant market area. The court further ruled that § 39-1-103(8)(d), C.R.S., requiring 30 sales of comparable properties within a county in order to establish sales ratios for properties does not apply to the market valuation of property for property tax purposes, but rather for sales ratio determination only.

In Carrara Place, LTD., et al., v. Arapahoe County Board of Equalization, et al., 761 P.2d 197 (Colo. 1988), the Colorado Supreme Court ruled that current data could not be considered because circumstances occurred outside the base year time frame and that the base year assessment is not unconstitutional. Note: The Division suggests the phrase “base year time frame” in the decision, reflects the same concept as the phrase “data-gathering period” stated in § 39-1-104(10.2), C.R.S.

The Colorado Court of Appeals, in Platinum Properties Corporation, et al., v. Board of Assessment Appeals, et al., 738 P.2d 34 (Colo. App. 1987), ruled that property sales occurring within the base appraisal (data-collection) period, but not formally closed until after the end of the base period, cannot be excluded from consideration by the Board of Assessment Appeals or the assessor when determining the true and typical sales price of the property.

In Home Federal Savings Bank v. Larimer County Board of Equalization, 857 P.2d 562 (Colo. App. 1993) the Colorado Court of Appeals ruled that for taxation purposes, market value is the price that a willing buyer would pay a willing seller under normal economic conditions. In addition, the court further ruled that the market approach to value mandates that an appraiser determine the probable sales price for property by considering what other comparable properties actually sold for in the market place at or about the date for which the value is sought.

The Colorado Court of Appeals, in C.P. & Son, Inc. v. The Board of County Commissioners of the County of Boulder, 953 P.2d 1303 (Colo. App. 1998), ruled that case law requires assessors to follow guidelines published by the property tax administrator and that mass appraisal was an acceptable methodology for property tax purposes. The court further supported the trial court’s determination that the sale of the subject property was not an arm’s length sale based on evidence provided by the assessor. This case references various pages from this volume and Addendum 3-B, Non-Qualifying Sales.

Confirmation of Sales

The reliability of any valuation model or sales ratio study depends on the quantity and quality of its data. The findings of a sales analysis can only be as accurate as the data used in the analysis. Therefore, sales data must be collected, and adjusted to obtain valid indicators of market value.

Sometimes values in an economic area or property use class must be established on the basis of only a small number of sales. When sales are relatively scarce, it is absolutely essential that each sale be carefully analyzed for the purpose of collecting as many arm’s-length sales as possible. It is extremely important that all sales be confirmed before they are used to determine appraised values and statistical compliance.

In Colorado, a documentary fee must be paid to the county clerk and recorder on most deeds conveying title to real property unless specifically exempted by statute. The amount of the documentary fee, based on one cent for every one hundred dollars (rounded) of consideration paid, must be stamped on the deed by the county clerk and recorder as required by article 13 of title 39, C.R.S. The inclusion of a documentary fee benefits the assessor. However, blind acceptance of documentary fees on deeds without further confirmation may lead to erroneous values.

One resource available to the assessor in the sales confirmation process is the Real Property Transfer Declaration (TD-1000). Refer to Addendum 3-D, Real Property Transfer Declaration. Any conveyance document presented for recording that is subject to the documentary fee must be accompanied by a TD-1000, as required by § 39-14-102(1)(a), C.R.S. The TD-1000 includes the sale price, which should be reflected in the documentary fee, and any personal property involved in the conveyance. Other information that may be found includes the percentage of ownership conveyed, financing, and other specific issues related to the sale.

Another resource is the Manufactured Home Transfer Declaration, which after July 1, 2008, is required to accompany any titled manufactured home conveyance, §39-14-103, C.R.S. Like the TD-1000, it includes the sale price, any personal property involved in the sale, and financing. Refer to the Manufactured Home Transfer Declaration located in ARL Volume 2, Administrative and Assessment Procedures, Chapter 9, Form Standards.

To aid the assessor in the identification of non-documentary fee conveyances, please refer to Addendum 3-A, Conveyances With No Documentary Fee.

Even though the TD-1000 provides valuable information concerning the sale, it is highly recommended that the assessor mail a supplemental questionnaire to each grantee. Sales that involve new subdivisions with possible development potential, sales of vacant land where specialized financing was available, sales involving a property trade, all commercial sales, and/or sales involving any unusual activity that is known by the assessor or identified on the TD-1000 must have a supplemental questionnaire mailed to both the grantee (buyer) and grantor (seller). Oftentimes the buyers and sellers are the only ones who know the true motivating factors in a transaction.

Generally, only documentary fee sales are considered for further analysis. However, if sales are scarce, supplementary sales confirmation questionnaires should be mailed to all grantees, even for those sales recorded without a documentary fee or a TD-1000.

Many sales may be discovered where documentary fees are required and TD-1000’s have been completed, but they may not be arm’s-length transactions. Since values can be distorted by inclusion of any non-arm’s-length sales in the appraisal process, these sales should generally not be used for market analysis and should never be used in statistical analysis or to set values. Therefore, these sales should be disqualified during the sales confirmation process. Refer to Addendum 3-B, Non-Qualifying Sales.

Development of a good sales confirmation program, including a simple but comprehensive supplemental sales confirmation questionnaire that requests information not included in the TD-1000, is also essential to discover sales that are non-arm’s-length transactions.

Refer to Addendum 3-C, Additional Confirmation Letters, when the TD-1000 has not been filed, is incomplete, or in situations where additional information is needed in the confirmation process.

Data Management

Sales must be screened to identify sales that require adjustment to reflect true market value. The goal of sales screening is to obtain an adequate number of valid sales, not to find reasons to exclude sales. To maximize the number of sales available for market and statistical analysis, a sales confirmation program should include three (3) separate listings of sales. The following lists are fundamental for establishing a good confirmation program and for proper submission of collected sales for use by the assessment auditor.

Master Transaction List

The Master Transaction List (Master List) consists of property transactions occurring within the county during the selected data-gathering period. The list should include all sales regardless of documentary fee requirements. Documentation must be available to explain why certain transactions are not included in the Master List. The Master List is an accounting of the transfer of any real property interest. The Master List provides necessary data for both the Qualified List and the Non-Qualified List.

Qualified (Confirmed/Verified) List

The Qualified (Confirmed/Verified) List contains all final sales, i.e., all sales that are considered to be arm’s-length transactions after the confirmation process is complete, even if certain qualified sales have not been verified. This list is to be used for the setting of land and improvement values, building depreciation rates, market conditions (time trend), sales ratio studies, and the analysis and evaluation process.

Larger counties may be unable to verify all sales because of the number of transactions that occur each year. They should make every effort to verify sales that generate outlying sales ratios.

Smaller counties should make every effort to verify all sales. The sum of the Qualified List and the Non-Qualified List must total the number of transactions on the Master Transaction List.

Qualified Sales

Qualified sales include those sales from the Master List which remain eligible to continue in the confirmation process after:

1. The elimination of sales involving transactions not requiring a documentary fee as described in title 39, article 13, C.R.S. Refer to Addendum 3-A, Conveyances With No Documentary Fee.
2. The elimination of non-qualifying sales that do not meet the test of being arm’s-length transactions. Refer to Addendum 3-B, Non Qualifying Sales.

The qualified list must never include a transaction not listed on the master list.

Verified Sales

Verified sales are the sales from the Qualified List that have been determined to be typical arm’s-length transactions after having been screened for characteristics indicating nonconformity to the definition of arm’s-length. Sales are considered to be verified when data supporting their arm’s-length character has been acquired using the Real Property Transfer Declaration (TD-1000), sales confirmation questionnaires, telephone and personal confirmation interviews, and physical inspections to confirm property characteristics at the time of sale.

Most residential single family sales can be included on the verified list simply by checking if the documentary fee value matches the sale price listed on the TD-1000. For residential exceptions, and for all other classes of property to acquire a place on the verified list, either a confirmation letter or documented telephone conversation must be completed to confirm the terms of the sale and the condition of the property at time of sale. For further information regarding the TD-1000 refer to Addendum 3-D, Real Property Transfer Declaration, and article 14 of title 39, C.R.S.

Non-Qualified List

The Non-Qualified List contains all sales transactions eliminated because of no documentary fee, confirmed to be disqualified as non-arm’s-length transactions, or eliminated as transactions occurring outside the data-gathering period.

Contracts for sale shall not be included as qualified sales unless the transaction is completed, but not necessarily formally closed, during the selected data-gathering period, as required in Platinum Properties Corporation, et al., v. Board of Assessment Appeals, et al., 738 P.2d 34 (Colo. App. 1987), and the sale qualifies as an arm’s-length transaction. However, if the terms and conditions of the original agreement have been consummated, as evidenced by a deed, at some time prior to a review, appeal, or abatement hearing, the transaction is to be considered as, but is to carry no more or less weight than, any other sale. Contract for sale prices that are included as qualified sales must be time adjusted to the appropriate data collection period trending point from the day the agreement was signed.

Adjustments to Sales

Once the confirmation process has progressed beyond the elimination of non-documentary fee conveyances and the disqualification of non-arm’s-length sales referenced in Addendum 3-B, Non-Qualifying Sales, possible adjustments must be determined before sales information can be used with confidence as to its representation of market value.

Adjustments that must be considered before sales can be used with confidence include:

1. Adjustment to isolate the value of real property reflected in the sale price as required by § 39-1-103(8)(f), C.R.S.
    
   1. Non-realty deduction, e.g., personal property.
      
      Many sales include significant items of personal property. If these sales are to be used, the value attributable to the personal property must be subtracted from the sale price to obtain an “adjusted sale price.” Arbitrary, estimated or percentage adjustments for personal property should never be used. Sales must be adjusted on an individual basis to reflect real property only.
      
      Exempt renewable energy personal property must also be deducted from residential sales prices. For more information, see ARL Volume 5, Personal Property Manual, Chapter 7, Special Issues, Renewable Energy Property Assessment.
       
2. Adjustment to correct for atypical financing arrangements or seller assisted down payments.
    
   1. Financing adjustment
      
      Some sale prices reflect the manner of financing of the property sold. Where sale prices reflect favorable financing terms, the sale price must be adjusted. The objective of the adjustment is to arrive at a sales price that is reflective of normal conditions of sale. Favorable financed sales that are not adjusted will introduce a bias in the measures of the level of assessment. Finance adjustment instructions can be found in Chapter 2, Appraisal Process, Economic Areas and Approaches to Value.
       
   2. Seller assisted down payments
      
      Seller assisted down payments must be declared on appropriate closing documents prior to adjusting the sales price. For more information refer to Addendum3-E, Seller Assisted Down Payments.
       
3. Adjustment to relate the sale price to the proper level of value.
    
   1. Time adjustment
      
      Time adjustment must be considered as required by § 39-1-104(10.2)(d), C.R.S., that states “the level of value shall be adjusted to the final day of the data-gathering period.”
      
      After non-realty, financing, and time adjustments have been considered, the time adjusted sales prices (TASPs) may be used to establish the valuation model. Refer to Chapter 2, Appraisal Process, Economic Areas, and the Approaches to Value.

Required Sales Data Bank

A listing of all necessary information connected with the sale must be collected, and
maintained in a sales data bank as required by § 39-14-102(4), C.R.S.

Filing of declaration – information available to county assessor.

(4) Each county assessor shall maintain a data bank consisting of information which has been derived from the declarations filed pursuant to the provisions of this article. Such information shall be used to properly adjust sales for sales ratio analysis and for determining the actual value of the real property transferred and the actual value of other real property, as well as other purposes deemed appropriate by the county assessor.

§ 39-14-102, C.R.S.

To create the sales data bank the information must include the first three items that are derived directly from the declaration, as well as, the additional items listed below.

1. Parcel or identification number/legal description or property address
2. Sale price

3. Date of sale (date of closing)

   Priority of deed dates: Refer to ARL, Volume 2, Chapter 3

   1. Date of delivery; date title passes to the grantee (shown in the signature area of the deed).
   2. Acknowledgment date; date deed signed by grantor and acknowledged by a notary public.
   3. Date made; date deed was prepared.
   4. Recording date; date deed was recorded by the clerk and recorder.

   If the TD-1000 is not filed with the deed, the above list should be used to identify the date the property was transferred. If the TD-1000 is available, it should be reviewed in conjunction with the deed. If the date of closing shown on the TD-1000 is significantly different than the date of delivery or the acknowledgment date shown on the deed, the date of closing should be verified. This review can be performed at the time the transfer is processed or in the sales confirmation process.

   If more information is needed, contact the grantee.

4. Economic area identifier
5. Use or abstract code
6. Assessor’s current actual value

7. Qualified/Unqualified status

   The following additional information connected with the sale may be included in the data bank, if determined necessary.

8. Book and page or reception number
9. Grantor and/or grantee
10. Documentary fee
11. Type of conveyance
12. Discretionary items, e.g., property characteristics
13. Notes

For further information on sales confirmation programs and sales questionnaires, please refer
to the following:

• Fundamentals of Mass Appraisal, 2011, International Association of Assessing Officers.
• Property Appraisal and Assessment Administration, 1990, International Association of Assessing Officers.
• Standard on Verification and Adjustment of Sales, 2010, International Association of Assessing Officers.
• Standard on Ratio Studies, 2010, International Association of Assessing Officers.

Preliminary sales ratio analyses should be run using the information created from the sales data bank of the Qualified List. A sales ratio is the relationship between actual value and sale price (actual value/sale price). Any outlier sales ratios should be flagged for further investigation. Outlier sales ratios are properties with very high or low sales ratios. They may result from poor or outdated appraisals, from a non-arm’s-length transaction, or from a mismatch between the property that sold and the property that was appraised. Outliers can distort sales ratios, particularly when the number of sales is small. Outliers should be carefully reviewed to determine if an adjustment to the sale is required or if the sale must be disqualified as non-arm’s- length.

The goal of sales qualification and confirmation is to obtain an adequate number of representative sales, not to find reasons to exclude sales. If the number of representative sales is limited, it is better to adjust sales than to delete sales from the analysis.

Sales Maps

It is very beneficial to plot sales on maps of economic areas, neighborhoods or even subdivisions. Maps can be coded to indicate any or all of the following: sale price, price per square foot, price per acre, price per site, sale date, use, structure or design, or age. Codes can be by color, symbol, dots, numbers, letters, etc. Good information on sale maps can aid in selecting sales for comparison analysis, determining neighborhood boundaries and/or to identify problem areas.

Stratification of Sales

Stratification is the sorting of sales and other market data into homogeneous groups for effective sales analysis and valuation. Stratification permits analysis of mass appraisal performance within and between property groups. In addition, it provides a more complete and detailed picture of the extent and nature of appraisal performance.

Stratification of sales must take place prior to final sales analysis. Stratification for sales analysis begins by sorting sales into property class or use, i.e., vacant land, single family residential, multi-family residential, etc.

Assessors should identify all significant stratifications that are representative of property within a county. Stratifying a class of property into subclasses and economic areas will improve the accuracy of property valuations. For example, if vacant land within a particular economic area is valued based only on vacant land sales within that particular economic area, then the values placed on those properties would be more representative of the vacant land market than they would be if represented by a composite of all vacant land sales.

Once neighborhoods and economic areas have been stratified, it may be advisable to stratify the subclasses of property into subdivisions, filings, design type, age, and construction quality groupings, if a sufficient number of qualified sales exist.

When the data becomes too sparse, stratification should cease. It is recommended that stratification and analysis of a subgroup of properties should not take place unless a minimum of 30 qualified sales exist within the strata. If sufficient data exists, the analysis by strata should go beyond the economic area level.

Sampling techniques and tests of reliability, normality, bias, and other similar statistical measures will help in discovering whether additional analysis is required to determine sample size or additional stratifications. For further information regarding statistical sampling refer to Chapter 8, Statistical Measurements.

If the data supports further stratification, and the appropriate number of sales exist, stratification should take place in the following order:

1. Property class, subclass, or use
2. Economic area
3. Neighborhood
4. Subdivision/Filings
5. Design type, age, construction quality

However, it should be noted that stratification by property characteristics can take place at any level, if so desired. If at any step in the stratification process a statistically reliable representative sample cannot be achieved, the process ceases. There are many major property characteristic variables available for statistical analysis of vacant land parcels. If the data exists, it should be utilized.

Physical Inspections

Physical inspections are a crucial step in verifying a sale. Utilizing the sales maps, physical inspections should be conducted for all sold properties as close to the sale date as possible in order to establish condition at time of sale and/or discovery of renovation, remodeling, additions or new construction.

Final Analysis

For those sales without TD-1000’s or supplemental questionnaires, telephone interviews or personal interviews should be attempted. Documentation of all telephone and personal interviews must be maintained. A direct interview of the buyer or seller, preferably both, is the best source to verify sales data.

When qualifying a sale, the following questions should be considered:

1. Does the transaction meet the definitions of market value and arm’s-length transaction

   Property Assessment Valuation, 2010, IAAO, defines market value as follows:

   “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.”

   Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

   1. Buyer and seller are typically motivated;
   2. Both parties are well informed or well advised and act in what they consider their best interests;
   3. A reasonable time is allowed for exposure in the open market;
   4. Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
   5. The price represents the normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

   The Dictionary of Real Estate Appraisal, 2022, 7^th Edition, Appraisal Institute, defines arm’s-length transaction as follows:

   “A transaction between unrelated parties who are each acting in his or her own best interest.”

2. Is the transaction typical of the market as a whole?
   1. The transaction is in line with comparable sales that conform to the definition of market value.
3. Is the transaction associated with one type of purchaser or specific properties?
   1. The market is offered to all prospective purchasers in all areas in the open market, not by tightly defined areas, locale or exclusive purchasers.
   2. Is the higher priced market available to all purchasers?
   3. Is the lower priced market available to all purchasers?
4. Is the financing provided by the seller? If so, does the financing influence the price paid
   1. Financing, if any, is on terms generally available in the community at the specified date and typical for the property type in the locale.
   2. The price represents a normal consideration for the property sold, unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

Special Issues Regarding Sales Confirmation

Multiple-Level Sales (Two-Tiered Market)

Within an economic area, real estate conveyances may indicate that there are multiple levels of sale prices for similar properties. Multiple levels or distorted levels of sale prices can occur when one of two separate groups of potential purchasers are exposed to atypical marketing techniques, or other atypical conditions of sale, causing extremely high or low sales ratios within the sample. These atypical sale conditions may indicate the existence of anomalies (abnormalities) in the marketplace. Such anomalies require adjustments to be made to sale prices to correct for atypical conditions of sale before they are used as comparable properties in the valuation process.

However, atypical, multiple level, or distorted markets may also indicate sales that do not conform to the definition of arm’s-length sales. Only arm’s-length sales should be used for statistical measurement of assessment accuracy or for establishing values for an economic area. All arm’s-length sales should conform to the definition of market value.

After consideration of the definition of market value, exclusion of sales should only occur if evident marketplace anomalies remain.

The following examples of atypical sale conditions will help recognize marketplace anomalies:

• Incentives or concessions are offered to the purchasers.
• A higher priced market exists that is not available to all purchasers.
• A lower priced market exists that is not available to all purchasers.
• Transactions that involve a specific list of properties directed to one type of purchaser and are not listed on the open market.
• Sales that involve very favorable seller financing terms that are not available in the local marketplace.
• Market operations, which are highly promoted, involving video presentations, attractive brochures, and very low down payments as well as non-real estate incentives.
• Buyers that purchase property without a prior on-site inspection.
• Buyers that purchase property without being aware of existing resale market.
• Local lenders are unwilling to finance purchases of the highly promoted properties.
• There are notable occurrences of re-sales, foreclosures, or deeds in lieu of foreclosure taking place in the subject-marketing area.

The above atypical conditions of sale should be used by the assessor as criterion when making a final determination as to the inclusion or exclusion of sales used in statistical analysis or value determination. It is recommended that a supplemental questionnaire be mailed to the grantee and/or grantor to further support the inclusion or exclusion of the sale. The supplemental questionnaire should be specific to the problems that caused the anomaly.

In addition, a complete documentation process must be undertaken prior to exclusion of sales due to anomalies in the market place. A sales file should be created for each sale to be examined. All pertinent data is to be included, e.g., property record card, deed, TD-1000, and supplemental confirmation information.

If it is apparent that certain sales meet these criteria, identification of the sales in question, their associated property characteristics, and the anomaly criteria met should be completely documented prior to their removal from the qualified sales list as non-arm’s-length sales. The final determination for inclusion or disqualification is up to the discretion of the assessor. However, complete documentation is essential.

Random or arbitrary exclusion of sales is never proper. Adjustment of atypical sales to the local market should be attempted prior to exclusion of these sales.

Only the most reliable sales data, occurring within the selected data collection period, should be used in statistical analysis or for the setting of values.

Foreclosures vs. Real Estate Owned (REO) Sales

There are two situations involving the transfer of property ownership which require special consideration:

1. Foreclosures.
2. Re-sales of foreclosures or Real Estate Owned (REO) sales.

Foreclosures

Foreclosure is defined in The Dictionary of Real Estate Appraisal, Appraisal Institute, 7^th Edition, 2022 as:

“The legal process in which a mortgagee forces the sale of a property to recover all or part of a loan on which the mortgagor has defaulted.”

In Colorado, loans for real property are typically secured by a deed of trust. The actual foreclosure procedure occurs after the trustor (borrower) defaults on the payment of the loan. The beneficiary (lender) then elects to have the property sold by the trustee, who often is both the public trustee and the county treasurer, to attempt to satisfy the terms of the loan. While this sale occurs at a public auction, the financial institution frequently accepts ownership of the property due to lack of competing bids.

Instruments that may be recorded as evidence that a foreclosure and subsequent transfer of property have occurred include a Sheriff’s Deed / Sheriff’s Confirmation Deed and a Public Trustee’s Deed / Public Trustee’s Confirmation Deed. These deeds represent the transfer of property ownership to the lender or guarantor and do not give evidence of market value. Any value represented on these types of deeds typically represents only the amount of the lien held by the lender, not the entire property value. These transactions are therefore excluded from all analyses.

A Deed in Lieu of Foreclosure may also be recorded as evidence of a foreclosure and subsequent transfer of property. A Deed in Lieu (of Foreclosure) is defined in The Dictionary of Real Estate Appraisal, Appraisal Institute, 7^th Edition, 2022 as:

“A deed given by an owner or debtor in lieu of foreclosure by the lender or mortgagee.”

These deeds do not represent market value because the “seller” is, in this case, the borrower who has defaulted on the loan. The borrower is conveying the property to the lender in order to forestall a foreclosure action. Any evidence of value stated in deeds in lieu of foreclosure typically represents only the amount of the lien against the property, not the entire property value. These transactions are therefore excluded from all analyses.

The transfer of ownership of property resulting from either a foreclosure proceeding being initiated against the owner, or a deed in lieu of foreclosure, are not to be considered qualified transactions and should not be included in determining market values. Since a financial institution is involved as the “buyer,” these transactions do not meet the test of being arm’s length transactions, and should therefore be disqualified.

Re-sales of Foreclosures (REO Sales)

Real Estate Owned (REO) properties are owned by an individual, a lending institution, or a governmental or private agency as the result of a foreclosure proceeding or after the execution of a deed in lieu of foreclosure. Ownership of the property has transferred to the individual, lender, or guarantor.

Entities that may be involved as the seller (grantor) in REO sales include the following:

1. Banks
2. Savings and Loans
3. 3. Mortgage Companies
4. Private Individuals
   
   In addition, REO sales may involve, as the seller, public or private agencies which provide loan insurance to lending institutions and acquire the property as part of the settlement of loan insurance agreements:
    
5. Veteran’s Administration (VA)
6. Housing and Urban Development (HUD)
7. Private Mortgage Insurance Companies

REO sales are gathered in the same manner as other real property transfers; from recorded deeds. The minimum data-gathering period for all sales is the eighteen-month period ending on June 30th of the year prior to a year of change in the level of value. If there are insufficient sales, the data-gathering period is extended up to five years, collected in six-month periods, from that June 30th. These sales are to be confirmed. The same sales confirmation process applies to both public and private sales.

Section 20(8)(c), article X, Colorado Constitution, states in part, “Past or future sales by a lender or government shall also be considered as comparable market sales and their sales prices kept as public records.”

This means that all such sales must be considered within their appropriate data collection periods. Past sales considered shall not include sales more than 60 months old when compared to the trending point for the current data collection period.

Therefore, Housing and Urban Development (HUD) sales, or other sales by a government or lending institution, can no longer be disqualified merely because they are lender or government sales. All sales of real property by a lending institution or by a government shall be included on the Master Transaction List regardless of whether or not documentary fees for these transactions were paid to the county clerk. Such sales may be disqualified from further analysis only if the properties were sold to another lending institution or government, or if the sales do not qualify as arm’s-length transactions for reasons applied to other types of sales.

REO sales are to be used in market analysis if proper sales confirmation procedures are followed. The lack of an immediate physical inspection to confirm the condition of the property may disqualify the sale, but REO sales are initially to be considered arm’s-length transactions.

HUD and Veterans Administration (VA) properties may show low sales prices if they are sold “as is” since they may not be subject to remodeling or rehabilitation after HUD or VA has acquired the property. Lending institution owned properties typically are repaired before they are listed for sale. In either case, however, by the time the sale is confirmed, many new owners have remodeled or rehabilitated their property.

Therefore, during the sales confirmation process, property characteristics at the time of sale must be clearly established. For REO sales, particular attention must be paid to the physical condition of the property at the time of the sale. It must be determined if the property was uninhabitable, condemned, renovated, or remodeled at the time of the sale.

When a sale is confirmed with an owner, the terms of the sale and condition of the property at the time of sale must be ascertained. By the time the sale is confirmed, substantial changes may have already taken place. Then, during confirmation of the sale, the owner may inadvertently state the present condition of the property rather than the condition at the time of sale.

To avoid a situation where subsequent physical changes become associated with the sale price, it is imperative that an interior and exterior inspection of the property be made as close to the date of sale as possible. Interior and exterior inspections are necessary for the confirmation of REO sales because lower sales prices for these types of properties are typically due to additional physical depreciation. Unless an inspection is made or it can be confirmed that the expenditures were minimal, i.e., only minor repairs were necessary, a resale of a foreclosed property should not be used to establish market value.

It is very important for proper analysis that properties be stratified correctly. Stratification of similar properties, whether by economic area, design, or condition, will enable the appraiser to correctly measure the impact of all market forces on the value of property. Note that foreclosure is not a criterion for stratification. Refer to Stratification of Sales for more information regarding this topic.

Example:

A HUD sale occurs in the selected data collection period and, due to a declining market and the large number of such sales, the assessor is unable to inspect the property immediately after the sale. This sale must be added to the county’s Master Transaction List. Several months after the sale, an appraiser inspects the property and discovers the new owner has completed a great deal of remodeling since the sale. This sale is disqualified due to reason code 68 – Sale not verified before extensive remodeling or building of additional improvements or change in use. See Addendum 3-B, Non-Qualifying Sales. The sale is placed on the Non-qualified List.

As mentioned above, lending institution REO properties are typically repaired before they are listed on the market. REO properties usually become competitive with other properties offered in the marketplace by owners who are not other lending institutions or government agencies.

REO properties’ advantage is that they may carry with them the possibility of atypical financing. This financing may include no down payment (100% financing), no closing costs, and/or lower interest rates than the current market mortgage rates offered to the public. These factors make this type of property more attractive to potential buyers and may shorten the time necessary to close the sale.

VA will finance some of its properties – up to 100% of the loan amount. The biggest advantage of a VA insured loan is the owner of the property now has a mortgage that is assumable and a potential buyer of this property does not have to qualify for the loan.

HUD does not finance properties, but most of its properties are subject to Federal Housing Authority (FHA) financing. It is up to the buyer to obtain financing for a HUD owned property.

All sales must be time adjusted to the appropriate appraisal date. This is especially important for economic areas or strata that contain significant numbers of REO sales over a period of time. The goal is to value all property, whether sold or unsold, at its correct level of value as evidenced by the market on the appraisal date.

Speculative Sales

Anticipation of planned or proposed economic or political events may cause an upward surge in real property sales prices, as reflected in recorded deeds, driven by the expectation of substantial future capital gains or future profits which might be derived from the effects of these events. Examples of these anticipated events include the following:

1. When a large new government facility, such as Denver International Airport, or a large private commercial or industrial manufacturing facility is planned for a known location, the volume of sales near the location typically will increase and sales prices can dramatically rise. These changes occur in anticipation of increased demand for supporting residential, commercial, or industrial property sites surrounding the operating facility.
2. When ballot proposals for property use change exist, as with limited gaming, land and improved property sales activity typically will increase and sales prices can dramatically rise. These changes occur in geographic areas that would be affected by the event because there is a general perception that above normal returns on investment could be realized after passage of the ballot proposal.

When the expected economic or political event occurs as anticipated, the sales activity and price patterns constitute a normal market reaction to changes in available opportunities. However, when the expected economic or political event fails to materialize, such transactions acquire the characteristics of unfulfilled agreements for which no market value can be determined and are, therefore, rightfully disqualified in the sales confirmation process as unfulfilled agreements.

Conditions to be Met

It must be emphasized that all four of the following conditions must be met before any sale is considered for disqualification based on speculative sales constituting unfulfilled agreements.

1. The anticipated event must be generally recognized as being a real possibility. Events that are generally considered to be only remotely possible do not qualify. Thus, the discussion of a possible private sector development or the circulation of initiative petitions would not, of themselves, constitute anticipated events. The actual purchase of land for the development or placement of an initiative on the ballot would constitute an anticipated event.
2. There must be documentable increases in sales activity and prices. This documentation might take the form of frequency distributions of sales volumes over time, based upon the date the assessor considered the event to be recognized among the public as a real possibility, e.g., publication in the local newspaper of the sale of land for the development or the secretary of state’s acceptance of the initiative petitions. The date that the development was abandoned, or the date the ballot proposal failed, should also be documented. A data analysis period extended to the assessment date may be used to substantiate this condition, if necessary. This extension would, in the event of a ballot proposal which is defeated in November of the same year, reflect a declining volume of sales and declining prices per unit comparable, e.g., per square foot of vacant land and improved property sold during November and December.
3. The anticipated event must fail to materialize. As stated before, if the anticipated event actually occurs, the increase in sales activity and rising prices constitute a normal market reaction to changes in available opportunities.
4. The individual sales, which analysis indicates may be speculative sales, must be confirmed as non-arm’s-length transactions before they are disqualified.

Further Analysis

The sales confirmation procedures that have been described in this section can be useful in determining if speculative sales should be disallowed. However, the following additional conditions or situations surrounding speculative sales should also be investigated. If one or more of these circumstances occur, as confirmed by the buyer or seller, consider disqualifying the sale as a non-arm’s-length transaction:

1. The sales contract contained a contingency clause that gave the buyer the option to terminate the agreement, with a loss of down payment, if the event failed to materialize.
2. The buyer “walked away” from the agreement, forfeiting a down payment and any accrued equity, when the event failed to materialize.
3. Financing was “owner will carry” with a substantial down payment.
4. Typical lending institutions would not finance the transactions.
5. A number of the transactions were cash sales in a market where financing was typical and the prices paid for properties appeared inordinately high.

IRC 1031 Real Estate Exchanges

Internal Revenue Code (IRC) §1031 Tax-Deferred Exchange may be defined as: a property exchange in which the taxpayer transfers property held for productive use in a trade or business or for investment and subsequently receives another property to be held either for productive use in a trade or business or for investment. An exchange offers the investor an opportunity to reinvest the federal capital gains, without tax liability that would normally be paid to the Internal Revenue Service (IRS). With proper planning, it is possible to avoid capital gains tax liability for as long as the exchange program remains a feature of federal tax law. There are no minimum or maximum dollar amounts. However, title to the property must be in the same name as the relinquished property. Primary residences and interests in partnerships do not qualify, and there is to be no tax-free receipt of cash by the transferor.

IRC 1031 (regulations issued in 1991) real estate exchanges are qualified sales unless disqualified due to one of the other disqualification reasons. “State non-qualification code 63 – Sale involves property trades,” or similar internal county codes, do not apply to these transactions, and after verification, these are likely qualified sales. They are not property trades in the traditional sense of the term. Straight property trades occur very infrequently.

Like-kind property must be exchanged, but like-kind property is defined as investment property, so raw land could be exchanged for apartment buildings or even second vacation homes. Like-kind property is also defined as trade or business property such as rental real estate or farm and ranch property.

The investor has 45 days from the closing on the relinquished property to identify up to three replacement properties, and 180 days from the closing (or as of the due date for the transferor’s next IRS return, including extensions, if earlier) to acquire one or more of the identified properties. More than three properties may be selected; however, their total value must not exceed 200 percent of the relinquished property value. The value of the acquired properties must exceed the value of the relinquished property and all equity from the relinquished property must be reinvested. Receiving cash or trading down is treated as boot (gain on the transfer) and taxed as capital gain.

Closing occurs separately for each of the properties and it is encouraging to note that some companies appear to be willing to share closing information. Intermediaries have copies of the closing sheets for each of the relinquished and replacement properties. The intermediaries may participate in the creation of Real Property Transfer Declarations (TD-1000), but are sometimes uncertain of how to answer the question involving property trades. Two deeds will come through the clerk’s office with documentary fees indicating the full purchase price in both cases; one for the intermediary and one for the ultimate purchaser when the exchange is complete.

Sales that exhibit the characteristics of multiple price levels, i.e., a two-tiered market, must be carefully analyzed. If deviations or departures in value from typical market transactions remain after adjustments have been made to atypical sales, the criteria for multiple level sales should be confirmed as applicable to these atypical sales prior to their disqualification as non-arm’s- length transactions.

Sales that are confirmed to be speculative sales constituting unfulfilled agreements for which no market value can be determined may be disqualified under certain conditions.

IRC 1031 (regulations issued in 1991) real estate exchanges are qualified sales unless disqualified due to one of the other disqualification reasons.

Addendum 3-A, Conveyances With No Documentary Fee

The following is a list of real estate conveyances that are exempt from the documentary fees required in article 13 of title 39, C.R.S., along with the associated codes which should be used to identify such conveyances on the Master Sales List. These conveyances ordinarily will not be shown on the Qualified List and, therefore, usually will not be used in determining values. Non-documentary fee conveyances may be used, if necessary, but they must be confirmed and verified.

Addendum 3-B, Reason Codes for Sales Determined to be Non-Qualified

The following is a list of real estate sales for which documentary fees are generally required. These sales must be thoroughly analyzed to determine whether they should be included on the Qualified or Non-qualified Sales Lists. If included on the Non-qualified List, they should not be used in statistical analysis or to establish values.

If a sale is determined to be non-qualified, use the appropriate Assigned Code from the following list to identify such sales on the Master Sales List.

Note: Sales disqualified under #70 must be extensively documented as to the reason the sale has been determined non-arm's-length.

Addendum 3-C, Additional Confirmation Letters

Sample Letter #1

Sample Letter #2

Sample Letter #3

Suggested Residential Questions

Suggested Commercial Questions

Suggested Vacant Land Questions

Residential Physical Inventory Questionnaire

Addendum 3-D, Real Property Transfer Declaration

Addendum 3-D, Real Property Transfer Declaration

Real Property Transfer Declaration Instructions

(TD-1000)

Every two years, Colorado assessors must appraise all real estate in the state. Selling prices of sold properties, taken from deeds, are used extensively in the appraisal process. Because of circumstances surrounding a sale (for example, a sale between family members), some selling prices are not truly indicative of a property’s value. Appraisers typically adjust sale prices when unusual circumstances exist, or disqualify (ignore) these sales. The Real Property Transfer Declaration (TD-1000) alerts the appraiser in the Assessor’s Office to sales that may not be an indication of a property’s value.

The following is a brief explanation of the purpose of each question on the Real Property Transfer Declaration:

1. Physical address or legal description of the real property sold:
   This information links the sale to the assessor’s records and identifies the property’s location.
2. Type of property purchased:
   This information allows the assessor to use one form for all uses of property and to identify the type of property purchased.
3. Date of Closing:
   The date the property is transferred from the seller to the buyer.
   Date of contract if different than date of closing:
   This allows the assessor to establish the exact date of the “meeting of the minds” concerning the date the sales price was agreed upon. Even though only “closed” sales are used to set values, this information may help the assessor to eliminate atypical sales conditions.
4. Total sale price.
   The total sale price is the most essential item of information concerning the sale, and its accuracy must be carefully scrutinized. The total sale price will sometimes differ from the recorded documentary fee. Adjustments to the sale price, often necessary before a sale can be used, are more accurate when the true price has been identified.
5. Was any personal property included in the transaction?
   If personal property, as listed on the RPTD, was included in the sale price, the value of the personal property must be subtracted from the sale price to determine the sale price of the real property transferred. Refer to § 39-1-103(8)(a)(I) & (f) and § 39-13-102(5)(a), C.R.S
6. Did the total sale price include a trade or exchange?
   Transactions involving trades of additional items or property should be excluded from the Assessor’s data bank of sales information whenever possible, particularly when the value of the traded property is substantial or cannot be reliably established. However, a trade under the IRS Code Section 1031 would be included in the analysis and therefore needs to be identified on the RPTD.
7. Was 100% interest in the real property purchased?
   It is crucial to identify whether or not the sale is a fee simple transaction (100%). If it is not, the sale price cannot be considered representative of the total market value of the property.
8. Is this transaction among related parties or acquaintances?
   It is important to know whether the buyer and seller are related individuals, business affiliates, or acquainted prior to the transaction because such sales might not reflect typical market value.
9. How was the property marketed and sold?
   This information assists the assessor in determining where to research additional information.
10. Check any of the following that apply to the condition of the improvements at the time of purchase.
    When determining market value, the condition of the property at the time of the sale is very important. If one or more of the items are checked, further analysis is necessary in order to establish the condition at the time of sale.
11. Finance questions:
    When financing reflects prevailing market practices and interest rates, which is ordinarily the case with third-party financing, sales prices would not require adjustments. However, adjustments or disqualifications may be considered if the type of financing is determined atypical or non-market.
12. Finance questions
13. Finance questions
14. Finance questions
15. Was an appraisal obtained regarding the transaction?
    This information can be helpful in valuing commercial and complex properties where there may be limited data available. 
16. Did the purchase price include a franchise or license fee?
    If a franchise fee or license fee is included in the sale price and the amount can be substantiated, the sale price should be adjusted to reflect the sale price of the real property only. If the franchise fee or license fee that is declared on the RPTD appears to be atypical, further analysis may be necessary before the sale is used.
17. Did the purchase involve an installment land contract?
    Title is not transferred until the final payment is made. Oftentimes the purchase price is agreed upon years prior to fulfillment of the contract and filing of the deed. Therefore, the purchase price may not be reflective of the current date on the deed.
18. If this was a vacant land sale, was an on-site inspection of the property conducted by the buyer prior to purchase?
    If the answer to this question is no, the possibility exists of an unknowledgeable buyer. Follow up with the grantee may be necessary.

Remarks: Please include any additional information concerning the sale you may feel is important.
Property specific characteristics or external factors that caused the final sale price to decrease or increase, and have not been addressed elsewhere on this form, should be noted here. The change in price may have been based on discovery of inadequacies during an inspection, additional market research or buyer/seller motivation.

Enter the day, month, and year, and have at least one of the parties to the transaction sign the document. Please ensure the buyer or seller sign on the designated line.
Validate the form with a signature and date and printed name of signatory.

Please provide an address where all future correspondence (tax bills, property valuations, etc.) regarding this property should be mailed to, as well as a phone number and email address for assessor or treasurer communication
There will be correspondence from the assessor and treasurer that will be important to the new owner of record. Having an accurate mailing address and other means of contact through telephone or email may help the assessor and the new owner exchange relevant information. This is also helpful if the property sold is not the physical address for the owner of record. This information is kept confidential according to Colorado law.

Addendum 3-E, Seller Assisted Down Payments

State of Colorado
Real Estate Commission and Board of Real Estate Appraisers
Joint Position Statement on Seller Assisted Down Payments
Adopted July 11, 2003

The Colorado Real Estate Commission and the Colorado Board of Real Estate Appraisers have issued this Joint Position Statement to address mutual concerns pertaining to practices of real estate brokers and real estate appraisers with regard to residential sales transactions involving seller assisted down payments.

Seller assisted down payments should not be confused with seller concessions.

For example, in the Housing and Urban Development (HUD) Handbook 4155. 1 REV-4 CHG-1, HUD permits sellers (or other interested third parties such as real estate brokers, builders, etc.) to contribute up to 6% of the property’s sales price toward the buyer’s actual closing costs, prepaid expenses, discount points, and other financing concessions. HUD defines other expenses (beyond those described above), paid on behalf of the borrower, as inducements to purchase. Further, HUD considers a dollar-for-dollar reduction to the sales price for inducement to purchase before applying the appropriate loan to value ratio. Similar consideration might be appropriate on loans not involving HUD.

There are varied sources of seller assisted down payments. In some cases, the seller and buyer choose to participate in a down payment program through a charitable organization. The seller pays a fee to the charitable organization and the charity “gift funds” the down payment for the buyer. The fee paid by the seller and the amount of the down payment is not necessarily equal.

In other cases, the seller may fund the buyer’s down payment through proceeds of the sale. A buyer may offer a purchase price higher than the listing price with the provision that the seller contributes the amount of the offer over the listing price as a seller assisted down payment for the buyer.

A residential real estate transaction has a life well beyond closing and possession of the property. Accurate sales data is crucial for appraisals and comparative market analysis (CMA) work products. Both appraisers and real estate brokers can effectively work together to maintain the safeguards that accurate sold data affords.

A real estate broker can facilitate these safeguards by adherence to the following:

• Note the presence and amount of any seller paid costs (including a seller assisted down payment or fee paid to a charitable organization on behalf of the buyer) in the proper transaction documents, including the Buy-Sell Contract, Closing Statement, and Real Property Transfer Declaration.
• Utilize all available fields in the multiple listing service to record all transaction terms, including seller contributions and inducements to purchase. Sold information should be entered promptly and be specific and detailed, particularly when the sold price includes a seller assisted down payment.
• Advise buyers and seller to consult legal and tax counsel for advice on tax consequences of seller contributions and inducements to purchase.
• Cooperate with appraisers as they perform their due diligence in asking questions about sales.

An appraiser can facilitate these safeguards by adherence to the following:

• Research and confirm subject property and comparable sales, including obtaining details of the contract and financing terms.
• Research and confirm all relevant information about a transaction, including determination of seller paid costs.
• Utilize all available data search tools, including the listing history and seller contributions features of multiple listing services.
• Make appropriate adjustments to comparables with seller contributions and inducements to purchase when developing work products.
• Comply with the applicable provisions of the Ethics Rule and Standards 1 & 2 of the Uniform Standards of Professional Appraisal Practice.
• Comply with any supplemental standards required by agencies such as the Federal Housing Administration.