Dear Monty: I have learned that a neighbor is "selling" their property for a negotiated price several hundred thousand dollars below the actual transaction price to help the new buyer to have a lower property tax base. The difference from the exact purchase price is that the seller supposedly pays the buyer several hundred thousand dollars for the home's contents. This amount seems inflated beyond the contents' actual value as it is used, which is average-quality furniture. The entire purchase price is cash. Since only the contract sales price will be reflected publicly, it becomes a bad comparison for the other homes in the area. The "sold" price per square foot will not reflect the actual sales price paid for the acquired real estate. What can/should I do to protect the comparable value of my home? Monty's Answer: A short discussion on value may help respond to the question. Property valuation in real estate has consistently demonstrated that there is not a single price for any property. Instead, there can be a wide range of value. The range expands with the lack of comparable sales or lack of similar locations. The range can exceed 30% from the top to the bottom of the range. The bottom end is defined as the lowest price one should accept based on comparable sales, and the high end signifies the highest price you can expect. It is common to see sales outside of the range.

THE PRESENCE OF AN ANOMALY

When a property is sold, an appraiser, a lender or a buyer will look at many comparables, which have a short shelf life. Lenders have different requirements, but many will only accept comparables less than 90 days old. Some may accept comparables up to 180 days old. As time passes, sale prices lose relevancy. While an extremely low cost (or high price) may draw some scrutiny, it will be because all the other comparables are higher (or lower), as the case may be. There is an old real estate saying that "one sale does not make a market."

YOUR OPTIONS

No. 1: You can do nothing. It is unclear how you obtained the information, and you may create some hard feelings or lose a friend over an anomaly.

No. 2: You can report it to the IRS. They don't care about the anomaly, but they do care about home sellers who may have broken the rules or not paid income taxes.

No. 3: You can do some research before you report them. Two IRS publications explain the rules. Look at IRS Form 14242.

There may be other options that could apply, but with the information provided, these seem most logical. I answered a similar question several years ago, where the situation was precisely the opposite of your question, which you can view on the Dear Monty website.

Richard Montgomery is a syndicated columnist, published author, retired real estate executive, serial entrepreneur and the founder of DearMonty.com and PropBox, Inc. He provides consumers with options to real estate issues. Follow him on Twitter(X) @dearmonty or DearsMonty.com.

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