Incomplete purchase contract provided

[J Grant]

Only if one believes that the sales contract is not a valid data point to consider.

All data point to a direction of value, no? (unless there are all the same and sold for exactly the same price)
The sales contract is just another piece of data; its value direction is considered like any other.

Sorry, have to disagree on this. The SC price is not "just another piece of data, its value direction considered like any other". IF that were true, then why do so many purchase appraisals have a MVO exactly at SC price? Clearly, the SC price is a heavily influential piece of data in value direction, much more so than any one comp or pending.

Of course it does. But, are you implying that because the best the appraiser could do is reconcile to a $50k spread, the sales contract, as a data point, is less reliable than if the spread was $20k?

Yes, a spread of 50k is less reliable than a spread of 20k (within the same price range ). How could it not be so?

If the adjusted values are 710-730k, that is a tighter range of value and more likely any point value within that range is highly credible and supported. But an adjusted range of 700k-750k is fairly wide, and likely that one point value will be more credible and supported, whether that point value be high , low, or mid range. A value of 710k if quite different than a value of 748k.

A wider range of adjusted value is even less reliable for saying any point value within it is as credible than another. An adjusted value range of 700k-780k means as much as an 80k difference is possible within point values within the range.

What's the difference if the sales contract price is within both ranges? In both, the sales contract is a data point within that range. Would the spread in the ranges require that it be given less consideration in the first example, and more consideration in the second?

Yes, see above comments.

In a lot of circumstances, I could make the argument that the wider the spread, that more consideration to the sales contract as a data point should be given.

That's an interesting take, with some validity. But one could just as well argue the opposite...the truth is, as you said, a subject SC price is a data point. The weight it is given is actually an appraiser deicision. Excluding contract prices distorted by concessions etc., let's talk plain vanilla sales contract prices. They have a better chance of being a MV price, and I will always consider that may be the case. Then again, they may not be. The point is, if you don't FIRST develop your own MVO, especially when a wide range of adj values is present, how do you know that the SC price is MV (or the most credible, supported MV)?. You are assuming the SC price is the most credible, supported MV because it falls within your adjusted value range..especially in a wide adjusted value range, that means your opinion of MV is anwyhere from 50k apart, if it is aligned mainly by the SC price.

(and again, this may come off as blunt due to typing, face to face might be more nuanced.)

Well, I'll leave your final process to you (naturally! :new_smile-l.

I don't leave the reconcilation for a day on all reports, just the tough ones. I know some other apprasiers who do that.


But I would think if you are concluding a point-value opinion without considering the contract price as a data point during that first-conclusion, then unless the contract price matches your preliminary point, it is always going to be contrary to what you first concluded, and you will find yourself in the position of modifying your opinion of market value by 1-2% from what you first thought independently (to use the term in the way I think you imply it to be used), to what the sales contract is.
I don't have that kind of conflict. :new_smile-l:

Appraisers are allowed to have varied ways they reconcile, and individual thought process... I think the "conflict" leads to a more credible value...the SC price is vetted against my opinion of value, and vice versa...the double checking and vetting imo leads to a better supported MVO.. any of our thought process that lead to the same place are valid.

 

[23Degrees]

This type of after the fact BS as well as a number of other factors is why I now charge more for purchase appraisals and just let them go most of the time because apparently I am very much alone in that regard. I think I've done two this year as once I learn its for a purchase the fee almost always goes up significantly.

There is probably no way to bottom line this but I'm going to try. Here are the choices after considering this new "data" point.

A - Change the report to reflect and reconcile to a different OMV. You now have two reports with the same effective date, different OMV's, and whatever other modifications necessary to account for the change in reconciliation. And this due only to a change in contract price. Some might consider this a hazard all by itself regardless of whatever egghead (not necessarily meant as derogatory) justification you manage to write out, and it looks like a good chunk of the pack will call you malleable and a number hitter.

B - Mention the new contract price in an addendum but don't change the OMV and have a good chunk of the pack call you holier than thou for not properly considering the "data" provided by this new contract price, modifying the reconciliation, and giving a 2% bump. A 2% bump can be classified as BFD or can lift the OMV over the high water mark for that class of home.

It is lose/lose and no one contributing to this thread has enough info to choose the right path except the OP.

Fun for him or her

 

[AnonApprsr]

A contract is a piece of market data to me. I always consider it if I have one.

 

[J Grant]

The subject contract is just a "data" point, but 80% or more of purchase appraisals just happen to come in exactly at that data point? And Santa Claus is real!

No matter how we reconcile, or how much or how little consideration we give a SC price, we are kidding ourselves by saying the SC price is a "just a data point" or piece of "market data". No matter how we phrase it, the SC price is hugely influential , much more so than any other "data point."

Everyone reading this post, please read cert 18 on a URAR form, and perhaps comment on how that fits in with the practice of reconciling to SC prices? (these assignments present a dilema, no matter how we cope, and some, like 23 Degrees, end up refusing most purchase work because of it)

 

[J Grant]

The way to tell how much SC prices affect appraised values would be to do a controlled experiment. Lenders could take 10 or 20 sample regions across the USA, and provide sales contracts to one group of appraisers, and withold it from another group of appraisers for six months. Then they switch the groups regarding reciept of contracts, and continue the experiment for six more months.

I bet the results would be dramatic :The groups without SC prices would opine differently from the SC price probably 60% or more of the time, with perhaps 40% of the values being large enough to matter. Yet the same control group, when furnished with SC , would opine to SC price aprox 80% of the time, (or whatever the average is)

Some appraisers within the control groups (those who rely more on their own MV rather than a SC price), would likely have far less difference in their values whether or not a SC was provided to them .

I doubt lenders would do this experiment because they have a vested interest in making sure SC are provided. There is a conflict inherent in purcahse appraisals not only for appraisers, but for lenders, as they need deals to go through to make $, yet are aware that the secondary market and investors who buy and back mortgages need a correct and independent MVO, rather than meeting a SC price. Some lenders are more concerned with the long term and don't push/ influence, others are interested in keeping their realtor referrels going and will tend to use appraisers likely to appraise to contract .

So, that's my view on the mess...I'm stuck with it, same as anyone else who does purchase appraisals for lenders.

 

[TRESinc]

The subject contract is just a "data" point, but 80% or more of purchase appraisals just happen to come in exactly at that data point? And Santa Claus is real!

using your own logic, show us proof that 80% or more of purchase appraisals just happen to come in at exactly the contract price. the media certainly does not agree with that number and neither do i, so prove it to us. i find it hard to believe that 80% of the appraisals, and by extension the appraisers in the country, are all just hitting the contract price. what concrete evidence do you have to support these claims?

 

[J Grant]

I am reporting general trends from reading and other posts here..one recent post showed a study that 89% of appraisals came in at SC price, then other posters pointed out that when a SC price is above the MVO, the SC price is adjusted down, so in reality, the figure is less. Who knows what the figure really is, since no studies have been done on how many prices are changed when an appriasal is low.

Therefore, my 80% figure is an estimate...the post was about an experiment that has not been done, so why would your expect there be any concrete evidence of an experiment that did not even take place?

Realtors claim 20% to 30% of deals don't come in because of "lowball" appraisals, with 20% the most popular number they whine about, therefore I said 80% for the proposed experiment, because 30% seems high based on reading .

I believe many appraisers try to do the right thing and not always come in at SC price, but just look at the media articles and realtors screaming about deals not coming in, and one has to wonder ...the realtors expect virtually every deal to come in at SC price and seem amazed when they don't. Why is that? Have they become accustomed over the years to most appraisals coming in at SC price?

Since so many posters here claim they reconcile to the exact SC price as long as it is within a range, even a wide range, it seems maybe my 80% estimate is pretty good? Posters have been outraged when an appraiser says they come in 5% below a SC price (yet these same posters are not outraged when an appraiser comes in 5% above a SC price). They say appraisers coming in below a SC price if it is in the range have a god complex!! How crazy is that? An appraiser is doing what they sign on the cert they do, opining a MVO, and other appraisers accuse them of having a god complex? What's wrong with that picture?

 

[TRESinc]

so there is no proof, just your own thoughts on the subject.

 

[hastalavista]

Since so many posters here claim they reconcile to the exact SC price as long as it is within a range, even a wide range, it seems maybe my 80% estimate is pretty good?

That's not what most posters have said, and you know it.
What many posters have said is that they consider the sales contract as a data point, and what I said is barring any significant reason to the contrary, it can (and many times does) establish my point value.
Your implication that sales contract = OMV is an automatic outcome because it is in the adjusted range is disingenuous (and that is the kindest way I can put it).

 

[hastalavista]

In fact, JGrant, here is a suggestion. It would fit your process perfectly, ensure you maintain your appraiser independence, allow you to sign the certification in full faith, and never put you in doubt of your objective analysis:

Don't review the sales contract until after you complete every other step in the appraisal development and reporting process.
USPAP requires the sales contract to be analyzed, but there is no rule it cannot be the last thing you do.
Complete the appraisal and reconcile your data. Conclude an opinion of value.
Then, review the contract and provide your analysis. This should make it easy; you'll be satisfied with your analysis without the influence of any contract bias. The only thing you may have to do is state why the contract is either not supported or your OMV is higher than the contract price (which is what most lenders expect and is a reasonable expectation). I believe you've said that your entire appraisal report does this already, so it wouldn't be too much (if any) additional work.
And, in the rare occasion (I'm assuming it will be rare, but you may be right-on more times than naught for all I know) your OMV and the contract price are equal, you can take some personal satisfaction that the sale is truly transacting at market value.

That seems like a win-win for you:
1. USPAP complaint
2. No question of independence and objectivity
3. No concern of a contract biasing your opinion

And, in the even more rare event that the contract does affect your opinion and you make a change, that can be done as well and no one is the wiser. In fact, you can run a statistical survey using your own appraisals as the benchmark: Start counting how many times the sales contract is not supported based on your process. Since you have the ability to modify your opinion of value up till the very end, this should be a pretty good indicator of what is valid and what is not.
I'd be interested in learning what the percentage of supported sales contracts are (don't count the ones that correct their sales price to match your value... they were wrong the first time; this compensates for all those appraisers who "hit" the sales price when it falls within their adjusted range).