Appraised Value Below Contract Price

[smackodu]

More and more I am asked by the lender to comment as to why the appraised value is below the contract price. Frankly I am getting tired of these requests. I know I am the professional here. Is anyone adding any verbage to their reports indicating the listing agent failed to present any comparable sales to the appraiser supporting the contract price?

As an example, yesterday I did an an appraisal in Leesburg, Virginia. The house was a 40 year old, 4400 sq ft brick colonial on 10 acres. The sales price was $800,000 and the agent had both sides of the transaction. The property had not been updated in over 20 years. I could find no comparables supporting the contract price in my initial search of the MLS. The agent met me at the inspection and tried to sell me on the property. I put an end to that quickly when I asked her if she comparable sales supporting the contract price. Her answer was no. I gave her a day to come up with some but she has failed to do that. My opinion of value will come in below the contract price and I want to head the agent off before I start hearing the complaints or get asked to review 10 sales that are nothing like the subject property.

 

[Hank Outlaw]

Sounds similar to the discussion on the "What you have been waiting for?" thread re: VA work.

My response would be to tell them to contact the lender / client if they have any questions, because you did the appraisal for the lender. That, and read the appraisal report... it should be pretty self-explanatory. After all, isn't that part of the appraisal process... for the appraiser to research / analyze appropriate data?

I understand your frustration. When the appraisal report is complete, I would like to think that the reader should at least understand where the appraiser is coming from - whether they agree with the value or not.

 

[HF Mudd]

"Based on the principle of substution, and the availability of reliable indicators of the subject's market values, the subject's conctract price of $zzz,zzz is unsupportable."

'nuff said.

 

[J Grant]

Here is what I write :

"The Sales contract price is above the market value opinion. Contract prices are negotiated by parties with individual motivations and are typically not arrived at using the same criteria for deriving a market value opinion in an appraisal."


"The appraiser has considered additional sales and listings, and did not find any further support for the contract price . " can be added if you wish.

 

[CANative]

Why were you looking for sales to support the contract price? Why were you asking the agent to find sales to support the contract price? WHY ON EARTH WOULD YOU PUT IT IN WRITING IN THE REPORT THAT AN AGENT FAILED TO HELP YOU WITH YOUR APPRAISAL?

I'm just being mean to help you get some self confidence which is probably all you need.

 

[J Grant]

I agree with Can NAtive, I would not mention a listing agent or asking them to come up with sales in an appraisal. Too specific, looks like you were relying on them to select comps, etc.

A couple of sample statements were offered in above posts.

A brief statement should suffice. After all, they do have the 30 plus page report, should they care to read it.

 

[CANative]

When I see that an appraisal is not going to agree with the contract price I go into defensive appraisal mode and provide a lot of detail in order to not get any whiny phone calls. Works every time.

 

[Rlong]

Part of your scope of work (for FNMA/most lending) is to analyze any current listings and the contracts. Providing a value opinion indicating you disagree with those, without the required analysis will likely always elicit requests for more explanation.

If your thinking this is somehow the responsibility of the listing broker to help you support the contract price; you might consider a classroom based ethics update. Your headed for trouble.

Bob in CO

 

[hastalavista]

Is anyone adding any verbage to their reports indicating the listing agent failed to present any comparable sales to the appraiser supporting the contract price?.

Like CAN said, I wouldn't write my reconciliation with that as the benchmark.

As I see it, there are three scenarios:
1. Contract is out of whack with the comps, and does not fall within the adjusted range (it is over or under).
This should be fairly easy to discuss.

2. Contract is within the adjusted range, but is different from the opinion of value. This is one that probably needs the most comment.
I had that situation today: contract price was somewhere around $145k, my OMV was $150k. I commented on why I thought my opinion was a more probable price than the contract (which was easy in this case). Likewise, if my OMV is lower than the contract. This is the reasonable thing to do, as it is logical for our users (who are making a lending decision on a purchase) to want a clear comment of why the adjusted range is consistent with the contract, but our OMV is different.

3. Contract is at OMV.
This should be fairly easy.

It seems to me that #2 is the one that takes effort.

Which one is your scenario?

 

[smackodu]

Why were you looking for sales to support the contract price? Why were you asking the agent to find sales to support the contract price? WHY ON EARTH WOULD YOU PUT IT IN WRITING IN THE REPORT THAT AN AGENT FAILED TO HELP YOU WITH YOUR APPRAISAL?

I'm just being mean to help you get some self confidence which is probably all you need.

You are not mean and I do not try to find properties to support the sales price. I took an Extenz last night so it is not the self-confidence problem...My point is that I would expect an agent who is getting both sides of $800,000 transaction to be proactive in making sure the house appraised at or above the contract price. My appraisal is not based on the contract price. This will just add one more to the stack of appraisals that I have done this month where the value came in below the contract price.....I always enjoy the "Told you so moment" when I am requested by the lender to change the sales price to the appraised value.