Incomplete purchase contract provided

[J Grant]

The 'why' behind this report is.....drum roll.....I didn't make contract price (actually the market didn't support contract price). Subtle huh?

This from the client section, "why to fire a sleazy AMC/lender client" And this is from a cert general appraiser. This shows the kind of pressure put on appraisers for not "making" SC prices.

And why is that pressure put on? Since so many appraisals routinely do "make SC price, when it doesn't happen, it becomes a reason to pressure the appraiser, rather than the next step for market participants to re negotiate or put more cash in to make up the difference.

If appraisers recognized themselves and stood up for themselves as market experts, this would not be the climate.

Instead of appraisers reconciling value opinions to sales contract prices, market particpants should be reconciling their prices to appraisers' market value opinions.

 

[J Grant]

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).

Denis, and I mean this respectfully, because I think highly of you, but how much of a difference is there between what I posted and what happens in these reconciliations?

We are just phasing it differently. I never in fact said, that OMV is an auto outcome because it is in the adjusted range. But in fact, that is quite often the outcome, and you just described the process...from the comps, an adjusted range is derived, the SC price is considered as a data point, and barring any significant reatson to contract , it can and many times does , establish the point value.

I am not trying to be a stubborn mule, but really, honestly, why is this happening? If the SC price is "just a data point", then why, does it establish the point value within an adjusted range?

The influence of a SC price is clearly much stronger than just a "data point. If it was just a data point, then why not establish the point value from the sum of the research and the best comps? Why is this one data point so compelling?

We know the answer why, if we are honest, and I am stuck with the same answer everyone else is. And I am stuck with the fact that what peers do establish the norm, and what clients expect. I probably end up reconcling to SC price , given that this is the climate and view from my peers, more than I would in a different climate.

Imagine the reversal : Instead of appraisers reconciling MV opinions to SC prices, why are not the parties reconciling their prices to market value opinions?

In fact, this does happen, when appraisers opine a MVO different from SC price, and presents strong support for why their MVO is the best supported. A surprising amount of the time, buyer and seller will work from the MVO and reach a new agreement and the deal goes forward anyway.

 

[J Grant]

Denis, I appreciate the suggestion, but it's all the same..sometimes I don't get a SC till late in the assignment or for various reasons don't look at it. It is less rare than you think that my MVO and SC price are equivalent.

I am not struggling with my own reconciliation of MVO and SC price, though I might spend more time on it than others, and will vet the MVO against the SC price, and vice versa , till I really feel one or the other is best supported.

What I am struggling with is the state of the profession and the way appraisers are so willing to abrogate their position as market experts (This is played out in how appraisers are treated, see the post from the client section by Elliot.)

It could have been different.

 

[Stone]

Denis, I appreciate the suggestion, but it's all the same..sometimes I don't get a SC till late in the assignment or for various reasons don't look at it. It is less rare than you think that my MVO and SC price are equivalent.

I am not struggling with my own reconciliation of MVO and SC price, though I might spend more time on it than others, and will vet the MVO against the SC price, and vice versa , till I really feel one or the other is best supported.

What I am struggling with is the state of the profession and the fact that due to appraisers abrograting their position as market experts, the expectation is that appraisers reconcile MVO to sales contract prices, rather than market particpants reconciling their prices to Market value opinions.

It could have been the latter...

Your ability to continually misrepresent what people write about this subject is amazing. Scary, but amazing. Talk about someone reading whatever she wants into posts.

 

[hastalavista]

Denis, and I mean this respectfully, because I think highly of you, what how much difference is there between what I posted and what actually happens?

We are just phasing it differently.

We are not, J Grant, and the the difference is significant. It also provides an explanation (to me) of what your perspective is, which (to use your words):

Instead of appraisers reconciling value opinions to sales contract prices, market particpants should be reconciling their prices to appraisers' market value opinions.

I'm surprised you give any consideration to the sales contract. I mean, why consider it at all (based on your comment above)?
Why would you modify your OMV based on the contract price (which, I think, you say you have.. especially if it is in the 1-2% spread) if you firmly believe in the second quote?
I'll tell you why I think you do: it is because you recognize that perhaps, within that 1-2% difference, the contract price may be the best and most logical indicator of value; so you modify your OMV and consider the sales contract price, and make a final reconciliation to a point (equal to, or slightly above; I doubt you would conclude a value of $497,728.. you'd probably round it to $498k or $500k... at least I would).
The alternative to the above is not what I think you'd do: that would be, you don't think the contract price is market value, but you increase your OMV to hit the contract to save you grief. Again, I repeat: You Don't Do This.

So, you are comfortable with adjusting your OMV by a few percentage points, because within that narrow range you conclude that it would be reasonable (I presume) to do so, and that the difference is trivial, and they are both the same.
Am I right?

Because if I'm right, you have no problem determining that if another does the same, but his/her variance is, maybe 3%, 4%, or more, that is somehow wrong and becomes a number-hitting exercise.
Do you not see the conflict (if I am right) between what you do/profess to do and how you judge/call-out others?

I told you what my analysis shows me with my adjustment scheme: high confidence with 5%, and a typical variance of up to 3%. What is inconsistent with acknowledging that level of uncertainty, and applying it to the in the final reconciliation process with the contract as a data point, when there is no compelling reason not to consider it a valid (and final, in my case) piece of the valuation puzzle?

Other than your presumption that considering the sales contract price and arriving at a OMV that equals the sales contract price is more likely a result of just hitting the number rather than reasonable analysis, how can you say that 1% or 2% variance (which you consider) is any better than 3%, or more?
I don't think you can make that credible argument.

What you can say is, "I'm not comfortable if the variance is more than 2%, so I stay with what I have."
OK, I can understand that. You make the argument in your report and let the chips fall where they do. When you make that argument, I can say, "Gee, in my experience, I'm not that accurate with the adjustment scheme; I don't restrict myself to the 1-2% variance." You can counter, "I think anything over 2% is too much, so I'm sticking with my range." That's fine. But you don't do that, you continue to imply that anything more than what you do is evidence of number hitting.
I'm forced to quote Bill Clinton... That takes a lot of brass to accuse the other side of doing something that you are doing yourself.

So, no, I don't think we are phrasing it differently. It is much more than that (from my perspective). :new_smile-l:

 

[J Grant]

Your ability to continually misrepresent what people write about this subject is amazing. Scary, but amazing. Talk about someone reading whatever she wants into posts.

Stone, then spell it out for me. How am I "mis reprsenting", what people write? Maybe I am making comments about the content that make some uncomfortable?

So explain, exactly, what you mean. I am reacting to what I see posted, where people write that they develop a range and then reconcile the point value to the SC price. Do you not see that written in many posts? How am I "misrepresenting" this?

 

[J Grant]

Quote:
Originally Posted by J Grant
Denis, and I mean this respectfully, because I think highly of you, what how much difference is there between what I posted and what actually happens?

We are just phasing it differently.

We are not, J Grant, and the the difference is significant. It also provides an explanation (to me) of what your perspective is, which (to use your words):

Quote:
Instead of appraisers reconciling value opinions to sales contract prices, market particpants should be reconciling their prices to appraisers' market value opinions.

The above is a general statement, about how if appraisers stuck to what they are supposed to do, opine indpendent MVO, the norm would be that market particpants would reconcile their prices to MVO opinions (in purchase appraisals). The fact is, it has become the other way around, and it has gotten to the point where we are in the position we are in, expected to meet SC price, and harrassed, black listed, and blasted by Realtors and the media when we don't. .

I'm surprised you give any consideration to the sales contract. I mean, why consider it at all (based on your comment above)?

The above comment was a general statement about the profession and our role. It does not stop me from considering the sales contract. In fact, the state of the profession, given all the pressure out there and actions of my peers, makes me consider the SC price pretty darn well.

Why would you modify your OMV based on the contract price (which, I think, you say you have.. especially if it is in the 1-2% spread) if you firmly believe in the second quote?
I'll tell you why I think you do: it is because you recognize that perhaps, within that 1-2% difference, the contract price may be the best and most logical indicator of value; so you modify your OMV and consider the sales contract price, and make a final reconciliation to a point (equal to, or slightly above; I doubt you would conclude a value of $497,728.. you'd probably round it to $498k or $500k... at least I would).
The alternative to the above is not what I think you'd do: that would be, you don't think the contract price is market value, but you increase your OMV to hit the contract to save you grief. Again, I repeat: You Don't Do This.

The reason I will reconcile to within a one % of one or even two %, (unless market conditions indicate otherwise), is that when my indpendent value is that close, often the SC price is a valid additional value indicator at that point. The second reason, I am not immune to what my peers do. They are reconclining to SC prices that are 5-10% away from other data points...so I would be totally outside the norm of my peers by not considering reconcling to within one /two percent.

So, you are comfortable with adjusting your OMV by a few percentage points, because within that narrow range you conclude that it would be reasonable (I presume) to do so, and that the difference is trivial, and they are both the same.
Am I right?

Yes, you are right! (see above comments.. i usually limit it to one or at most two %, more typically 1%,...they are not the same, but equivalent enough to be supportable )

Because if I'm right, you have no problem determining that if another does the same, but his/her variance is, maybe 3%, 4%, or more, that is somehow wrong and becomes a number-hitting exercise.
Do you not see the conflict (if I am right) between what you do/profess to do and how you judge/call-out others?

I do see a conflict, because, there is a difference between 1 %, and 4%, or greater. When we reference it in math, the difference between 1% and 3% is not that great.

But in monetary terms, the gap at 2% and above becomes significant.

Use a $300,000 contract price as an example. One percent off a SC price is $3000. Most buyers and sellers can acomodate that. Let's jump to 3% of the SC price. Now we are at $9000. That's a fairly significant amount of money. What is the justification for closing the gap of $9000? It is still such as small amount? On one hand , you are saying that 3%,is no big deal. 3% is 9k. If $9000 is no big deal, why is it so hard to ask the buyer to put that down as cash to close the gap in contract price?

It's hard, because $9000 is real money to the buyer and real money to our client. OUR lender client, now has to put $9000 more up at closing into the subject when we reconcile up at 3%.

I told you what my analysis shows me with my adjustment scheme: high confidence with 5%, and a typical variance of up to 3%. What is inconsistent with acknowledging that level of uncertainty, and applying it to the in the final reconciliation process with the contract as a data point, when there is no compelling reason not to consider it a valid (and final, in my case) piece of the valuation puzzle?

Other than your presumption that considering the sales contract price and arriving at a OMV that equals the sales contract price is more likely a result of just hitting the number rather than reasonable analysis, how can you say that 1% or 2% variance (which you consider) is any better than 3%, or more?

See above comments in red. Because a lower percent, such as 1%, is far less risk and far less actual money, than 5%. If your confidence is high at 5%, would you like to put in $15000 of your own money to finance this home? Because that is the five percent....your lender client will now have to put up $15,000 more at closing to pay for your confidence.

I don't think you can make that credible argument.

The credible argument is above, it's not just 1 % or 3% or 5%, it's real money, that is going to have to come from someone, the buyer, the seller, or our client, at the closing table.

What you can say is, "I'm not comfortable if the variance is more than 2%, so I stay with what I have."
OK, I can understand that. You make the argument in your report and let the chips fall where they do. When you make that argument, I can say, "Gee, in my experience, I'm not that accurate with the adjustment scheme; I don't restrict myself to the 1-2% variance." You can counter, "I think anything over 2% is too much, so I'm sticking with my range." That's fine. But you don't do that, you continue to imply that anything more than what you do is evidence of number hitting.
I'm forced to quote Bill Clinton... That takes a lot of brass to accuse the other side of doing something that you are doing yourself.

So, no, I don't think we are phrasing it differently. It is much more than that (from my perspective). :new_smile-l:

I wrote my perspective above...consider what it means when we stop referrencing the difference between a MVO and a SC as a few %, and translate it to the real money which is at stake.

 

[hastalavista]

I'll end my part of this discussion (didn't I say that before? :laugh.
Take my observations for what they are worth (probably not much)-

Your concern regarding "hitting the sales contract" is not misplaced; that happens with some appraisers, and client-pressure does exist and it can coerce the outcome of an appraisal to be equal to the sales contract.
I don't think any appraiser would argue with you on this.

I think that your concern/passion/focus on the above has given you a bit of a jaundiced eye on evaluating the appraisal process.
This entire discussion of where the sales contract price-point is, is based upon the assumption that it falls within the adjusted range. We are (you, me, and everyone else) in agreement that up to this part of the valuation analysis, the process has worked.

What we are left with is this: A range of values and a contract price. If we assume that the contract price has been properly analyzed, and no unusual term/conditions exist, and it falls within the adjusted range, and there is no compelling reason not to give it consideration, then a valid choice is:
A. Give it significant consideration for all the reasons cited above, and the opinion of market value will probably be consistent with the sales contract (in my case, substitute "highly likely" for "probably").

If there is a compelling reason not to give it consideration, then the choice is:
B. Do not give it significant consideration, and conclude an opinion at some other price-point.

If "B" is the action the appraiser takes, the only thing I think most users and other appraisers will want to see is a persuasive argument of why the appraiser's OMV is a better indication of the market value than the sales contract. Throughout this entire discussion, everyone has acknowledged that such situations exist, and when they do, the OMV should be based on the best evidence which, in the case of "B", is something different from the contract price.

So, when "B" is not the case, wouldn't it seem reasonable, logical, and natural that the probable result of the "A" scenario is that the contract price is the final data point considered and the OMV is reconciled accordingly?*

That's where I'm in significant disagreement with you; the case of "A". In the case of "A", where "B" doesn't exist, why wouldn't the OMV and the contract price be similar/the same?

*(Some appraisers may be concerned about their OMV being consistent with the contract price because they will be thought of as a "number hitter"; intentionally avoiding the most probable price is as bad as intentionally opining a value that is not the most probable price.)

I think your concern of number-hitting and pre-determination of values makes you conclude that "A" is a rare event, and since it happens so often (OMV = Contract Price), then there must be something faulty with the appraiser or the appraisal-process the appraiser is using; so it is either a bad-apple appraiser or a misapplication of the appraisal process.

While I have a similar concern of number-hitting, I don't see that being a risk when the conditions in "A" are present. And, I would presume when "A" is the situation, it is more likely than not that OMV is consistent with the sales price. I'd find it unusual that not be the case (unless the situation is consistent with "B").

Your concern about number-hitting makes almost all situations where the contract price and the OMV are the same suspect, even when it happens under the conditions presented in "A".
My concern about number-hitting disappears when the contract price and OMV are the same under the conditions presented in "A".
That is the significant difference between our positions.

 

[hastalavista]

I wrote my perspective above...consider what it means when we stop referrencing the difference between a MVO and a SC as a few %, and translate it to the real money which is at stake.

OK, I lied; this is it for me!

The bolded part: It makes no difference what metric you use; percentage or dollar; the fundamental issue doesn't change.

 

[J Grant]

Sorry, Denis, and who knows, maybe we will both never end this and go into the twilight zone...but there is a big difference in the metric. Refering to a 3% diff between SC price and MVO makes it sound like a minor math variance and no big deal, so why not go with the SC.

But in real world terms, it is $, ($9,000 on the 300 k example, 300k being a popular price point). Deals are made and lost over 9k, and 9k is a significant amount more for our lender client to put into financing the house.

I did not read the body of your #108r post, I will get to it later (have to take a break, brain is fried)

Always a pleasure to debate you though, we are both coming to it with good intentions and not trying to diminish the other, just posting what we truly believe in.