Appraised Value Below Contract Price

[J Grant]

JGrant, you never cease to amaze me. I suspect I've forgotten more about appraisal theory and technique than you know. Good appraisal practice is to "analyze" (with all of the implications inherent in that word--see my prior post with the dictionary definitiion) the sales contract.

Apparisers are anlyzing the SC , why do you keep stating they don't? Because you found some board complaint on one who didn't?

Love when someone disagrees with some of you yahoos that suddenly we are labeled "skippies"--for doing a more thorough job and delving into the "analysis" of the SC in greater detail than you. We do more yet get labeled as skippy! Too funny and more clueless by the day.

You bring it on yourself, because your default when you can't defend a post is to belittle someone (oops, you did it again). What bunch of BS...the purpose of the appraisal is to opine a MVO for the subject, not write a bible about the SC. We are analyzing the SC, by the way.

The problem with your view, is that analyzing the SC becomes a proxy for deriving an independent MVO. As in, if the appraiser "analyzes" at length about the SC , including the price, that sets up the SC price as becoming the benchmark for MV.

Nothing wrong with an independent analysis of a SC , but over analyzing it in order to "prove" how "reasonable" the SC price is, such as reasonable enough to be MVO, is another matter.

BTW--I only do residential appraisals for eminent domain and litigation. Generally standards are higher for such reports than for the FNMA work that is handled by too many "form fillers" intent on fullfilling what they see as the minimum requirements.

A lot of FNMA is not form filling, though it is done on a form. Yeah , a forty page report on high end ocean front property is form filling.

Ltigation is a private judge who may know less about market value appraising then some underwriters. It does take a certain skill, I will grant you that. If you are good at eminent domain, contratulations.

 

[mark hurlock]

Nope, can't have any of that!

If you bothered to read the thread you would see where I posted that it may be appropriate for an appraiser to form and report an opinion on the sale price. However, Cal failed to establish any circumstance that might be appropriate. Instead, he chose to simply state it is required.

I asked for documentation of this requirement and he failed. Now you have taken up his cause and also failed to document any such requirement.

 

[CANative]

I'm disappointed Pete that you could be lead off on this tangent. I'm even more disappointed that you waive your commercial license around (and little else) to support your statements.

 

[mark hurlock]

I'm disappointed Pete that you could be lead off on this tangent. I'm even more disappointed that you waive your commercial license around (and little else) to support your statements.

Thank you very much!

 

[J Grant]

The contract price is a fact, based on whatever the participants used to arrive at its conclusion. The market value is an opinion, based on a methodology. The coincidence that the numbers are the same does not (cannot) make them identical since they were both arrived at by different (albeit similar) processes.

Your arguments get weaker and weaker. Yes, the subject SC price is a fact, but then so are the other comp sales prices and pendings "facts"....so why does the appraisal manage to come out at the exact same price as just one of the "facts"?

And yes, the MVO is an opinion, but it is the opinion our client is paying us to develop. Last I heard, the client was not paying us to parrot back the SC price, just because it is a "fact".

And at least be honest for a change. It is not a "coincidence" that the numbers are the same. The numbers are the same because an appraiser makes them the same, mostly for client expectation, to make life easy, and because a number of peers are doing it.

I guarantee you, if the SC prices were removed from purchase appraisals, very few of the numbers would come out exactly the same.

The coincidence that the numbers are the same does not (cannot) make them identical since they were both arrived at by different (albeit similar) processes

This is priceless, right up there with "I didn't inhale" Now you are saying that a number that is the same is not identical? When did that mathmatical miracle occur? You claim they are not identical because they were arrived at by different processes? What a riot! Buyers and sellers everywhere, every day, manage to use mental telepathy and divine the exact same number the appraiser will arrive at later as MVO? How good is that? The average American buyer must be a genius ...(well, too bad 40% of them are underwater and millions lost their homes to foreclosure...guess the number they divined that would later match a MVO wasn't so right after all...)

 

[Mr Rex]

I think you could easily make the case that analysis of the contract would extend to discussion of the opinion of value in light of the contracted amount. See USPAP lines 789-797.

What it boils down to is that the intended user has to understand the rationale for the opinions and conclusions. So would this not include providing the rationale for an opinion of value that differs from the contract price, whether higher or lower?

 

[Pittsburgh Pete]

If some don't see the generally accepted definition of the word "analyze" as sufficient support for my stance and Calvin's, more's the pity! You can continue to state what the SC says (that essentially seems to be the stance of most here), I will continue to analyze it with all the implications inherent given the word's denotation and connotation.

 

[residentialguy]

but that does not excuse not rendering a thorough vetting of the contract.

No one is asking you to form an opinion of the contract price. They are asking you why YOUR opinion is different. I bet your hienie if you were HIGHER you'd be agonizing over an explanation to head off the inevitable stip.

Is the price higher because of concessions and personal property?
Is the pirce higher because the property is mispriced?

Just how difficult is that? I cannot read "analyze" to just mean i shall think upon these things but not dare say anything about the price. To me that is the central issue the lender wants to know.

I fired a bank 2 weeks ago. Why? A contract that was $8,500 higher than my MV estiamte. AND, it was $5000 above the highest sale in the subdivision, $16,000 above the median sale. If it closes, it will be about the 4th largest house sold there and 10% above the median...a little closer on a per SF basis. And this house wasn't even built yet. It was "pre-sold"...some event that will have to take place months down the road.

I explained that the contract appears to be high because it was a contract for a future sale after the house is built and "subject to" financing by FHA AND that there were no sales in that subdivision to support the value. Since FHA hasn't appraised it yet, the Sales Contract is a future wild card.

The response of the banker (almost certainly pressure from the borrower/builder/Realtor) was to ask me to go further afield - I refused.

Clearly, banks don't give a cadam about the facts of the area sales. My comps were all within sight of each other. They just wanted the appraised value to match the appraisal....it was their "target" and they (the borrower) thought by providing this (perhaps bogus?) future contract they could jack the price (they complained about the previous report we did and they did manage to get about $1,500 more from that sale than we predicted.)

See above...you don't need to "form an opinion of the contract price." You need to ANALYZE why it is different from your estimate...and report it. There is not one reason to look at a contract, other than concessions and personal property, to vet the contract EXCEPT to explain why your value is different from the contract....

Don't worry terrel, I didn't ignore it.

 

[J Grant]

I think you could easily make the case that analysis of the contract would extend to discussion of the opinion of value in light of the contracted amount. See USPAP lines 789-797.

What it boils down to is that the intended user has to understand the rationale for the opinions and conclusions. So would this not include providing the rationale for an opinion of value that differs from the contract price, whether higher or lower?

Isn't the entire appraisal report the rationale for the opinions and conclusions?

If a rationale is needed for explaining why a MVO differs from a SC price, then why not also provide one for how they managed to come out exactly the same?

The actual explanation for why they are the same would be laughable, in many cases. Would love to see that requirement added.

 

[Calvin the Airedale]

Your arguments get weaker and weaker. Yes, the subject SC price is a fact, but then so are the other comp sales prices and pendings "facts"....so why does the appraisal manage to come out at the exact same price as just one of the "facts"?

And yes, the MVO is an opinion, but it is the opinion our client is paying us to develop. Last I heard, the client was not paying us to parrot back the SC price, just because it is a "fact".

And at least be honest for a change. It is not a "coincidence" that the numbers are the same. The numbers are the same because an appraiser makes them the same, mostly for client expectation, to make life easy, and because a number of peers are doing it.

I guarantee you, if the SC prices were removed from purchase appraisals, very few of the numbers would come out exactly the same.

The coincidence that the numbers are the same does not (cannot) make them identical since they were both arrived at by different (albeit similar) processes

This is priceless, right up there with "I didn't inhale" Now you are saying that a number that is the same is not identical? When did that mathmatical miracle occur? You claim they are not identical because they were arrived at by different processes? What a riot! Buyers and sellers everywhere, every day, manage to use mental telepathy and divine the exact same number the appraiser will arrive at later as MVO? How good is that? The average American buyer must be a genius ...(well, too bad 40% of them are underwater and millions lost their homes to foreclosure...guess the number they divined that would later match a MVO wasn't so right after all...)

We are opining market value, which means that the market is the basis for the value. It should not be strange, therefore, that transactions drawn from the market might actually coincide with opinions as to MV.

You look at the fact that MP and MV often coincide and see conspiracy. I see a functioning market, and one in which appraisers are reporting values based on properly analyzed market prices.