I am trying to utilize some comparables which contain funky financing and will show my ignorance as I am unsure how to measure the influence it had on the sales.
I do not have any typically financed sales to match pairs.

It is a targeted area which receives special funding for new construction.

Here is an example. Sales price $85,000.00.
1st mortgage 80% at typical rate
2nd mortgage $5,000.00 at 0% due at 10 years with no recapture tax.
3rd mortgage $14,000.00 at 0% with the entire mortgage being forgiven after five years.
The 2nd and 3rd mortgages assume they will not be sold in that time span otherwise will have to be paid back at market rate. There are no monthly payments on the 2nd and 3rd.

Please take a stab at this.

Without spending a lot of time on this one, here is my take.

The sales price is $68,000. The rest is fluff and is there to make the deal appear above board. The 1st loan amount will end up being 100% of the sales price. The additional loans are there to make it look like the lender is making a 80% loan when in fact it is a 100% deal. This is full of fraud and I bet the underwriter will not let it go thru. Remember, Truth and lending, signed statements, etc.

Side note, for those of you that think the appraiser is at fault if he appraisers the property at $85,000; let me hear from you.

MEP

He is certainly at fault if the comps don't support it. I wonder if the comps have funky financing also? Fraud is widespread and in some cases permeiates s/d's. Perferred lenders and such cause entire developments to see whacky things like "creative financing".....or free car with purchase of home....or best deal on financing if using the builders lender. RESPA violations....just ask KB or Centex.

I am doing a refinance on a home and the only sales in the area are the one's with funky financing. The 2nd and 3rd mortgages are through special state funding programs. The homes are being sold at cost to try and get folks in certain areas. It is a city operated program ran to state standards.
But the home I am doing is not involved in that program. The only sales in the area are the ones with funky financing.
Yes I think the $85,000.00 is affected by the financing but is it by the total of the 2nd and 3rd mortgages? That may be harsh.

I have seen something this convoluted a couple of times. One was a Rural Development (formerly Farmers Home) loan that had a second that was forgivable based on every year occupied after 5 years with the total of the second forgiven by the end of 10 years. They still have a negatively amortized 1st time buyer program that forgives part of the loan for owner occupancy over a period of time.

The second time was a community grant program (operated by the county in partnership with an affordable housing grant)that worked with Habitat for Humanity and forgave part of the second every year for the first five years.

Unless a goverment entity such as Rural Development or a local goverment sponsored program was doing the forgivable loan, I would not touch anything with those terms with my 50 foot reel!

Fake second & third mortgages, where the sales price has been inflated to cover the forgiven amounts are one of the leading indicators of mortgage fraud.

Thanks Michelle,

The 2nd and 3rd mortgages are by a state funded/operated program.
The comparables I am considering for use are in this program.
The subject, what I am appraising, is not and has not been in this program.
There is a lack of comparables in the neighborhood with typical financing. Therefore I feel I must make an effort to use these or state why I did not before going to another neighborhood. You know "going outside the neighborhood" that everybody bitches about here.
I simply don't know how to calculate the effect (without paired sales) or if it is even possible.

Okay I read this thread again. Your comparable sales have all received this type of financing, legitimately. The percentage of the third mortgage is really high for a forgivable grant, but the reality is that if someone sells it next year or in the 1st five years - that amount must be repaid. So is it really a concession and if so what is an "appropriate" adjustment?

These are typically done to promote affordable homeownership in areas that are in decline or are stagnant and the time period of the forgiven amount is to discourage entrepreneurship/flipping.

I would probably use 2 comparable sales in the immediate neighborhood and discuss this program in detail in the additional comments and then expand the search by distance to locate a more traditionally financed 3rd comparable sale in a similar economic neighborhood and rely heavily on the results of the 3rd comp to determine whether or not a financing adjustment was warranted.

I would assume that there would be some affect, but it would not be the entire amount of the 2nd & 3rd mortgage. In some markets there may be no affect, as the supply of grants do not meet the demand for grants if the market is stable or rising. Do you really have no other comps?

Yes I had another comp, a foreclosure that needed work.
The junk I have to consider requires so many adjustments it really affects the reliability of the data.
Don't have any sales in similar economic developments so I am going to throw everyhing I can find at it and write a narrative.
At least I know the funky financing sales set the upper limits of value.