Please comment regarding the Contract Price being higher than the Appraised Value.

[J Grant]

George, I understand your reasoning and the case you are making for it and semi agree, in some senses. That said, see below comments.

]I consider a pending contract for sale to be a piece of market data, even if it's for the subject. [/b]

A data point has no agenda behind it and is neutral information.

A pending contract price for our subject is loaded with agenda and expectations...appraisers know there is a lot riding on it and if the appraised value doesn't meet or exceedt the contract price, the deal won't work, or the client might not use them again,, etc. Therefore, it is much more than just a data point.

Inasmuch as I only sometimes appraise my subject at a higher or lower value I fail to see why I wouldn't want to analyze and compare that information against my other direct comparables.

The problem with contract prices is they can influence our opinion and they are not supposed to. Perhaps not you, (of course!), But there are appraisers who end up appraising backwards, working with the contract price and then using or rejecting comps and listings with the main criteria being, will the comps make the contract price work or not.

It's a question that most readers would have and there's nothing wrong with them asking it.

The answer is supposed to be in the report, reading the report, the comps used and listings etc should answer the question.

I think ignoring the question outright but just "coincidentally" coming to the same value conclusion looks a lot more dodgey than simply dealing with the issue straight up.

There is some truth to that. However, addressing it is always awkward...no matter how you put it, it looks like the appraiser was trying to meet the value. Better to let the report speak for istelf.

"A reasonable value conclusion as a range is between $200k - $210k. The subject's pending sale price at $210,000 falls within that range so I consider it to be a reasonable expression of the concept of Market Value as defined."

Above, it becomes awkward. You are introducing language,such as using the words "reasonable" and "expression of the concept of market value"...this language is not in the definition of MV and the fear is an attorney or reviewer can use any deviation such as this, in trying to explain why a value opinion met the sales price against an appraiser. Imo, letting the report and results of report speak to the crediblity of the value opinion is best.

For most appraisers, a tie goes to the runner. I don't see anything wrong with acknowledging that. Especially in review work.

I am not quite sure what the last senence means...do you mean a tie in value then the sales price wins? What is a runner? Not sure what that means.:mellow:

 

[prasercat]

I would also have put an explanation in the narrative section of the addendum regarding the apparent discrepancy between the reconciled value as of the effective date and the contract price.

Given, I don't know the specifics of the appraisal or market in question, some general considerations would be:

I may talk about these factors in relation to the apparent market efficiency or inefficiency as evident in the range of adjusted values. Is the contract price within the range of adjusted values? Is the market highly inefficient due to low sales volume? I would explain, "The "appraised value" point value is a standard convention, although a range is implicit centered around the value estimated. Real estate markets are normally too inefficient to quantify in exact dollar amounts."

"Due to the inherent inefficiency of the subject real estate market for the subject property as of the effective date, as evident in the range of adjusted values, the accuracy of the appraisal should be +/- $x, which represents the most probable range." [ I would define the most probable range as one within about 2 standard deviations from the appraised value or within 95% of occurrences.] Does the contract price lie within that range or outside that range?

Has the market changed between the contract date and the effective date? Is the sale an arms-length transaction? Is there personal property included in the deal? Is the contract price higher than the list price or last list price? Is the contract price consistent with the depreciation or appreciation for the subject neighborhood since the last sale of the subject given that the condition of the property hasn't changed or has changed, etc.

 

[CANative]

Ms. Grant...

"Tie goes to the runner..."

The definition of market value is, in part, "the most probable price." Since it's not possible to get all indicators to the exact point value then it's logical to assume that two parties who have already agreed to a price represent "most probable" as long as that price is consistent with the indications.

Even though George's posts are different than my original response, I agree with him. I was being flippant because in most cases it's not a matter of the client or AMC wanting a better understanding of my thoughts but rather wanting me to explain why their deal won't work. It's annoying.

 

[George Hatch]

There are lots of appraisers who consider listing and sales contract information to be prejudicial when given to an appraiser, based on the habit of some appraisers to use those as targets. Personally, I don't see it that way. I like the idea of knowing in advance when I'm going to have to prove the negative - I hate the idea of trying to invent that wheel after the fact.

I am not quite sure what the last senence means...do you mean a tie in value then the sales price wins? What is a runner? Not sure what that means.

"Tie goes to the runner' is a baseball metaphor related to base running. How it relates to value reconciliation is that by acknowledging that MV can be expressed as a range even more readily than a pinpoint value, we are also acknowledging that a contract price that falls within that appraisers "value conclusion as a range" can be considered reasonably supported in the market. It's no more nefarious than rounding, which is something else most appraisers do as a means of building credibility.

For reviewers this tact is especially handy when answering the question about the reasonableness and appropriateness of the original report's value conclusion. That value conclusion might not exactly mesh with the reviewer's opinion if it were their appraisal and still be very reasonable as an example or expression of MV as defined.

If an appraiser holds to the idea that there is only one true pinpoint value in an MV assignment then they obviously have a choice to make when reviewing appraisal reports:

- They can either choose to say that the original appraisal's $205,000 conclusion is "inaccurate" in Fannie parlance when compared to the $200,000 they would personally have valued, or

- State that their pinpoint value conclusion is $205,000 even though it really isn't.

I don't like being forced via poorly framed questions to make such decisions. I prefer to express my opinion in terms I think will be useful within the context of the intended use. Other appraisers may not have such concerns, which is certainly their prerogative. I'm not going to criticize a legit appraisal over semantics or get into a peeing match with the original appraiser over a really trivial difference of opinion that at any rate falls within a reasonable range of opinions I'd get from any 10 appraisers anyway. Neither am I going to lie and say if it were my assignment I would have appraised it for exactly that much if that's not the case.

YMMV.

 

[Gregory Beck]

I think we should appraise without a contract. Who cares? Appraiser should just give an opinion of value. If there are concessions paid then it will come up when another appraiser uses that comp later on . Then in the new appraisal it will be deducted. So why all the pressure for a contract? We should just give a value. Who cares if the buyers mother lived 2 houses down or stuff like that.

 

[JamesRockford]

I think we should appraise without a contract. Who cares? Appraiser should just give an opinion of value. If there are concessions paid then it will come up when another appraiser uses that comp later on . Then in the new appraisal it will be deducted. So why all the pressure for a contract? We should just give a value.

Are you kidding me?

You might want to take a USPAP course sooner rather than later.

"Pending Sale: Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), the appraiser is required to review and analyze the contract and the listing (market exposure) and to “summarize the information analyzed, the appraisal procedures followed, and the reasoning that supports the analyses, opinions and conclusions.”

Pursuant to USPAP AO-1, the appraiser must take into account the listing [market exposure], the agreed price, and the pending sale of the subject. The appraiser’s failure to analyze these facts may exclude important information....(See AO-1, lines 32-39).

Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), if a copy of the contract was unobtainable, a statement on the efforts undertaken by the appraiser to obtain a copy of the contract is required. If the contract is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required."

 

[PropertyEconomics]

Are you kidding me?

You might want to take a USPAP course sooner rather than later.

"Pending Sale: Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), the appraiser is required to review and analyze the contract and the listing (market exposure) and to “summarize the information analyzed, the appraisal procedures followed, and the reasoning that supports the analyses, opinions and conclusions.”

Pursuant to USPAP AO-1, the appraiser must take into account the listing [market exposure], the agreed price, and the pending sale of the subject. The appraiser’s failure to analyze these facts may exclude important information....(See AO-1, lines 32-39).

Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), if a copy of the contract was unobtainable, a statement on the efforts undertaken by the appraiser to obtain a copy of the contract is required. If the contract is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required."

Only if the contract is provided or is available during the normal course of business ... not all contracts are provided and when they are not .. its not a USPAP violation.

 

[OSU Beavers]

"Buyer is a dumb*ss" enough said.

 

[JamesRockford]

Only if the contract is provided or is available during the normal course of business ... not all contracts are provided and when they are not .. its not a USPAP violation.

Feel free and read my ENTIRE post which also included this from USPAP:

"Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), if a copy of the contract was unobtainable, a statement on the efforts undertaken by the appraiser to obtain a copy of the contract is required. If the contract is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required."

Also, some clients REQUIRE a purchase contract from the lender before the appraisal is even ordered.

 

[PropertyEconomics]

Feel free and read my ENTIRE post which also included this from USPAP:

"Pursuant to USPAP Standards Rule 1-5(a) and 2-2(b)(ix), if a copy of the contract was unobtainable, a statement on the efforts undertaken by the appraiser to obtain a copy of the contract is required. If the contract is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required."

Also, some clients REQUIRE a purchase contract from the lender before the appraisal is even ordered.

Which does not mean they provide it to the appraiser. If it is not provided it is not a USPAP violation ... you were the one touting how someone needed to take a USPAP class ... I merely pointed out its not always available nor is it mandatory.
Your reference above is well taken but further supports my position.