Appraised Value Below Contract Price

[Calvin the Airedale]

Calvin, just read the request: "Analyze the Purchase Contract"
Where does an analysis of the purchase contract stipulate adding in a discussion of the appraised value? I posted earlier that in the final reconciliation in the report, it would be prudent to discuss variances between the contract price and the concluded value. Are we just disagreeing where such discussion in the report it might take place?

You come to your stated conclusions about any variances with the contract in your reports after having opined the value. Good for you, it's as it should be.

All I'm saying is that the contract analysis should be be done post valuation not beforehand. The reason is because the valuation is the proper metric by which to judge the reasonableness of the sale contract, and the most important element of the contract: the sale price. The loan is underwritten on the lower of the SP or the MV.

 

[residentialguy]

From the URAR certifciations page:

18) "My employment and /or compensation for preforming this appraisal or any future or anticipated appraisalswas not condtioned on any agreement or understanding , written or otherwise, that I would report (or present analysis supporting ) a predetermined specific value, a predetermined minimum value, a range or direction in value, a value that favors the cause of any party, or the attainment of a specific result or occurence of a specific subsequent event (such as approval of a pending mortgage application)"

The above cert prohibits presenting an analysis supporting a pretermined specific value, would not a statement about reconciling the SC price and a MVO be doing that?

No. Not even close. Has nothing to do with it. When you analyze the motivation of buyer and seller, you consider whether both parties were well informed or advised, you analyze whether there was reasonable exposure to the open market or whether the price was influenced by special or creative financing, you typically find the reason why the price was over or under contract. You do the same with all your comps...well, you should.

 

[J Grant]

Seems funny that the actual contract price/offer of the actual subject (most similar comparable) is the only significantly relevant price data were suppose ignore/ don't analyze?

: ) Bob in Co

Nobody said to ignore, but nobody instructed appraisers to reconcile to it, either .

Read cert 18 on the URAR form signature pages and tell me how that instructs an appraiser to factor in a SC price to value.

 

[Calvin the Airedale]

And for the last time "analysis" does not require reconciling the opinion of value with a benchmark. Your point of view is colored from too much time on the dark side.

In a proper contract analysis, one is not reconciling the MV with the sale agreement, but the other way round: the MV has been opined, one is reconciling the sale price with the MV because the MV has become the standard by which one can determine the reasonableness of the price.

 

[residentialguy]

In a proper contract analysis, one is not reconciling the MV with the sale agreement, but the other way round: the MV has been opined, one is reconciling the sale price with the MV because the MV has become the standard by which one can determine the reasonableness of the price.

Whether you want to say the glass is 1/2 full or empty is up to you. You should talk about all the market data, but esp your subject...it your subject. Kinda like a book report - you want to talk about the book. Comp 1 was sold low due to it being a relocation and short marketing time.

The subject sold below market value due to it being a distressed short sale.

 

[mark hurlock]

Dear Mr. Hurlock,

I owe you less than butkus.

It is obvious why you post with an alias.

And it didn't take much of an analysis to come to that conclusion.

You made a statement as though fact and failed to document your claim. I simply gave you the benefit of the doubt. If you owe anything, it is to your own credibility.

 

[mark hurlock]

I OTOH, have the practical witness of the explanations provided me by regulators and FNMA from days gone by as to what those folks expected or what would suffice to fulfill such obligations.

They just forgot to put it in writing and inform the rest of us.

Total nonsense.

 

[residentialguy]

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

then

It is obvious why you post with an alias.

???????

 

[mark hurlock]

How so? Cause you say so? Fine, cite me sources that say as much. That seems to be the gist of the argument against my contentions.

Cert 18 is a source, as are the other certs (see below posts) In your board example, they addressed a lack of anaylizing some aspects of the contract, it said nothing about the appraiser not adressing why a CS price differed from the MVO.

J,

you are correct and the this guy has failed to even demonstrate when and why it “may” be appropriate to form a opinion of the sale price and when failure to do so “might” be considered negligent. But to simply say it is required is nonsense.

Like many appraisal concepts, it is subjective to assignment conditions and the scope of work determined by the client and or appraiser.

 

[J Grant]

No. Not even close. Has nothing to do with it. When you analyze the motivation of buyer and seller, you consider whether both parties were well informed or advised, you analyze whether there was reasonable exposure to the open market or whether the price was influenced by special or creative financing, you typically find the reason why the price was over or under contract. You do the same with all your comps...well, you should.

There is nothing wrong with analyzing a contract. But that's different than letting the SC price determine the value.

What you say makes great PC, except that, we don't reconcile the point value to exactly that of one of our best comp 90% of the time, do we?

Yet we have appraisers who arrive at a point value that matches a SC price 90% or higher, some virtually 100%. That clearly shows a strong weight on the SC price, much more so than on any other comp, pending, or market indicator on the report.

Looking at the high percent of times appraisals come in exactly at SC price, how is it that a buyer and seller always manage, a few weeks or more prior, to arrive at the exact same amount in a SC price that later the appraiser will opine as their point value?

These folks are amazing!

Real world: when they negotiate price, the parties don't have an appraised MVO to work off, so they don't factor it in. They work off a CMA the realtor gave them, the asking price of the house, and their own personal finances and motivations.

So, how is it, that they managed to arrive exactly at our MVO three weeks earlier? (or whenever they signed contract)

Oh no they didn't....what happened is, a few weeks later, on the effective date, we have the knowledge of their negotiated price. They didn't have our MVO, but we have their negotiated price..drumroll... to match our MV to their SC price or not.? To be or not to be, that is the question.

Though a SC price many times can be equivalent to a MVO, there are far more times when it is only marginally supported, at best. But appraisers make it happen anyway. because of client or realtor epectation, and peer practice out there .

Thus, appraisers who actually do what the cert says, derive an independent MVO, are put on the defensive, and grilled about why their MVO and the SC are not twins.

Identical twins, separated at birth! A negotiated price hatched weeks earlier by strangers , happens to become the exact point value delivered by an appraiser weeks later!

Even nature can't accomplish that, real twins are born minutes from each other, and conceived at the same time.

Think about it for a moment...if instead of being deal faciliators, appraisers reclaimed their role as market experts and opined indpendent values, business opportunities would double. Realtors would recomend that parties get an appraisal done prior to negotiating, and sellers would hire an appraiser for a list price.

Right now, few bother working off an appraisal, because they figure that most times, an appaiser is going to match what they want anyway when it is time to get the loan.