Appraised Value Below Contract Price

[PropertyEconomics]

Calvin ... I have to disagree with you here. I see no requirement for an appraiser to make any comment comparing the opinion of market value against the sales contract ... I would think that done during the normal course of underwriting.

There is certainly no requirement for an appraiser to do so. In fact, Im not sure an appraiser should. An appraiser is (or should be) an expert in market valuation of property rights ... I dont think we have the obligation to put on legal, Realtor and underwriter hats as well.

USPAP is interesting .. it says what it says and it doesnt say what it doesnt say. I personally think there is a reason for that and our obligation is to only do what it says ... not what others wish it said.

 

[J Grant]

PE is the voice of reason...

Imo, this client request seems a customer relations issue. The lenders see the media releases where realtors are squawking about appraisers are coming in low, and loan officers have to deal with them. Lender clients are asking appraisers to suppply an explanation about why SC price and MVO don't match up, to appease realtor and borrower customers.

 

[residentialguy]

PE is the voice of reason...

More like a voice on not thinking about the consequences. When I have a comp that seemed to sell to high or to low, I will comment on it. It surely will comment on the subject who's contract is specifically one we are to analysis. To analysis doesn't mean to look at it and keep it a secret.

Go ahead, say nothing about it. Just don't biatch about the stips, because they WILL keep coming.

 

[gregb]

A common interpretation of the requirement to analyze the purchase contract means that the appraiser reports to the client an analysis of the contract relating to:
Personal property included
Names of parties involved
Real estate involved (including property interests)
Terms of sale (contract price, seller contribution, interest buydowns etc.)
Concessions
Financing (including any special or creative financing)
Add-ons or repairs
Have yet to read or be told by any client that an analysis of the purchase contract also involves comparing/contrasting the contract price with the concluded value in the appraisal in the portion of the appraisal addressing the analysis of the purchase contract.

 

[David Mescon]

Apparently, it is the government's and GSE's obligation to parse every jot and tittle of regulation so as to so inform even the idiots who wish to ply their trade in this profession.

No offense, Calvin, but it was the government who decided to regulate us in the first place. Then, as our government ALWAYS does, they saw fit not just to regulate us, but to regulate the living crap out of us to the degree that many of us decided we were just too overregulated, and that the rewards of our profession were outweighed by the risks. Residential appraisers have been burdened for a couple of decades now by a set of "rules" designed primarily by non-residential appraisers. These "rules" are written in an obfuscatory manner and are often used as a noose with which to hang targeted appraisers. Let us not forget - not for a moment, that the primary reason these "rules" were foisted upon us, (residential types), was that folks like you, (commercial types - not you specifically), committed a whole bunch of fraud. As with any government boondoggle, the rules have taken on a life of their own and just grow and grow - because we all know that whatever the problem, greater governmental intervention and regulation must certainly be the answer. God forbid the free market were allowed to take its natural course ever again. This profession is becoming completely farcical. Each and every time I read posts about the INSANE level of scope creep inherent in even the most straightforward appraisal work, I thank my lucky stars that I am longer a participant in this charade.

 

[mark hurlock]

From FNMA Guidelines:
Guidance for Lenders and Appraisers April 2009
Chapter 2 – Preparing and Reviewing the Appraisal Report..........................................................................7
Contract Section.........................................................................................................................................10
Contract Section
The appraiser must analyze and report on: any current contract for sale; the owner of public record; financing data and sales concessions.


From CFR, whereas it was once written specifically to require contract analysis, it now defaults to that which is required by USPAP as follows:

e-CFR Data is current as of September 20, 2012​

Title 12: Banks and Banking
Browse Previous | Browse Next
PART 34—REAL ESTATE LENDING AND APPRAISALS

§ 34.44 Minimum appraisal standards.
top
For federally related transactions, all appraisals shall, at a minimum:
(a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless principles of safe and sound banking require compliance with stricter standards;

From USPAP:
Standards Rule 1-5
605 When the value opinion to be developed is market value, an appraiser must, if such information is
606 available to the appraiser in the normal course of business:14
607 (a) analyze all agreements of sale, options, and listings of the subject property current as of the
608 effective date of the appraisal; and
609 (b) analyze all sales of the subject property that occurred within the three (3) years prior to the
610 effective date of the appraisal.15

Calvin,

you have posted the requirement that appraisers analyze the contract. But you failed to post any requirement that the appraiser form an opinion of the contract price.

Please tell me you have something more than your misguided interpretation.

Also, ad hominem attacks lend no credibility to your argument.

 

[gregb]

Its a tricky area to tread on a sale when the appraised value varies from the contract price, no matter if the appraised value is above or below the contract price.

The contract price and terms of sale are objective. The concluded value is opinion, presumably well supported.

When the value conclusion varies from the contract price, and it appears from analysis of the contract and the terms of sale that an explanation can be offered, it may be prudent to discuss this in the final reconciliation section of the appraisal. When an analysis of the contract and terms of sale do not offer an explanation for the difference between contract price and value conclusion, I simply state that and do not put on the psychoanalyst hat to get into the minds of the seller/buyer.

 

[residentialguy]

I simply state that and do not put on the psychoanalyst hat to get into the minds of the seller/buyer.

No one says to do that...but market value is about buyer/seller motivations and being knowledgeable. I certainly make an attempt to find out by asking a few simple questions. ie How long have they been searching the market? What neighborhoods have they been looking at? What was their search criteria? Why did they choose that house over the others? Did the buyer and seller know each other? The answers to these kind of questions may help you understand the reason as to "why".
If you didn't see a reason, now you can say that you researched and couldn't find a reason to why it sold below or above market value. Any further investigation should be left to a professional psychologist.

 

[CANative]

Agree with the others. Calvin has drunk too much lender Kool Aid. It happens (anyone remember Brad Ellis?)

 

[CANative]

I thought I should go back and read the post in question. My opinion is unchanged.

And for another thing, who cares where the analysis is reported? Supposedly SR 1 comes before SR 2 so it shouldn't matter. And for me it truly doesn't matter. I have no trouble keeping distractions out of my work.

And if the opinion of value is credible the answer to the question about the contract price is self evident and needs no explanation. If this was something the GSE's or FHA was interested in it would be in the guidelines. And it's not.

It is an appraiser's obligation under CFR and GSE regs to analyze the sale agreement. Most (appraisers) have no idea what this means. The unfortunate placement of this section on the top side of URAR page one suggests to most that this be done at the front of the report. Properly, however, it can only be done after the MV has already been estimated.​

When your lender client is asking you why the value is lower than the sale price it is because you have failed to properly analyze the sale agreement!​

In fact, the only basis for analyzing the SC is the opined market value. Based on its closeness to MV, the appraiser can then say it's either too high, too low, or well supported by available market comparisons according to the definition of value opined. The reasons the price is either too high or low may even be apparent and if so should be touched on in the contract analysis. If they are unknown, that might be stated also.​

It's not our responsibility to support a contract price, only to support our opinion of value. But if a contract exists, we have other obligations most seem to ignore. Too often, this section is a simple recounting of facts, and not an analysis. (Please look up the definition of analyze.)​

I'm already braced for the criticism that "it's not me place to say whether someone's purchase price is too high or too low." BS! It is exactly your place, and your obligation! USPAP, GSE guidelines, and CFR rules require it!​