Predetermined Value USPAP

[Overimprovement]

For those who think client is breaking some law--report them. Let us all know how it turns out. Fines? Penalties? Loss of FDIC insurance? AMC's can hardly be touched the way the rules are written.

Are they attempting to influence value? Possibly. Can you prove it? No. Will there be any repercussions to them if it is reported? Very unlikely. Does it still wreak of unfair practices? Possibly.

What is the best response then? Vent here, take a deep breath, and make a business decision to accept or decline.

 

[Bob Ipock]

What is considered predetermined?
I have a new client that sent and engagement letter for a refinance and this is on the letter.

Estimated Value: $450,000
Loan Amount: $330,000

Would this be considered a predetermined value?
My thought is this is a predetermined value as how can I ever prove I didn't accept this order with out having an expected value.
How is this different than a contract price?
My thoughts are a contract price is a fact set by 2 opposing parties.

Thanks,

Only if the order is contingent on that value offers advice on how to respond in the Ethics section.

 

[George Hatch]

Biased conduct is demonstrated by biased outcomes. Not by mere association. It's more expedient for appraisers to actively strive to avoid even the appearance or implication of working to a targeted conclusion, but IRL borrowers and brokers express their wishes all the time without it usually being of any effect on the outcome.

I actively solicit whatever info a borrower or broker wants me to consider in an appraisal assignment. That shows how afraid I am of being accused of hitting their targeted outcome. (and how confident I am that my info is almost invariably more complete than theirs')

 

[Terrel L. Shields]

The problem is the anchor bias. Once presented with this, you may think you are ignoring it, but it impacts you anyway unconsciously. Test. Go 30 minutes away from a major airport. Ask 10 people, "How long does it take to get to the airport? 15 minutes?" Now ask 10 more people, "How long does it take to get to the airport? 60 minutes?" The first 10 average will almost certainly be a lower number than the second 10 people.

 

[BRCJR]

I realize this is from the IAEG but touches on the subject matter.

An institution’s policies and procedures should ensure that it avoids inappropriate actions that would compromise the independence of the collateral valuation function,15 including: • Communicating a predetermined, expected, or qualifying estimate of value, or a loan amount or target loan-to-value ratio to an appraiser or person performing an evaluation.

 

[J Grant]

As appraisers, we are not responsible for a client or RE agent/other's behavior. We are responsible for our own behavior - which includes which clients to work with and what assignments to accept.

A predetermined value or value direction/outcome has a different meaning to a client or party then it does to the appraiser. Lenders/Clients have certain rules about appraisal independence, some follow them to the letter, others not so much. RE agents q much looser set of rules and buyers/sellers almost none. Therefore it is of far less consequence to have an owner blabbing what they think their house is worth. .

Appraisers are on the receiving end of attempts to influence on many levels, most of it easily rebuffed. But a segment of appraisers are eager to get a value direction /target and meet it. Let's not kid ourselves about that. Those appraisers are self directed to appraise "high" , or whatever they think will help the client . In a review, though, the appraisal stands and is judged on its own merits..

 

[GWISC]

I would not accept the assignment nor any other with the refi amount printed. A homeowner can always tell you what they think their house is worth. That happens from time to time, but not always.

If the OP is like many of us, the workfile contains field notes, copies of zoning codes, copies of the mortgage rates at that moment in time, and a whole host of other elements and information that helped us complete the assignment and that includes a copy of the order. Not all reviewers are the same and have the same knowledge base of what is ok and what is not ok. I would not want to face a state board that may have an overzealous board or investigator.

Best to let the client shop elsewhere. As J Grant alluded to earlier, some lenders attract more scrutiny than others. I don't want to be associated with them.

 

[Bobby Bucks]

I haven’t seen “estimated value” on an order in years. However the lenders wish to defend the term, we know it’s a subtle way of saying “Luca Brasi wants to be certain you complete the contract correctly. “

 

[GWISC]

BTW, as far as not being influenced by a mortgage amount and estimate of value, it does.

If I tell you: Don't think of elephants, and don't think of bananas.

What just popped into your mind? I bet it was an elephant and bananas.

If they tell you they think it is worth X amount which happens to coincide perfectly to their mortgage amount being under 80%, what just popped into your mind even before looking for market evidence?

Looking at an OTP is a bit different. An OTP is where two entities come to an agreement typically through back-and-forth negotiations. I will inquire with the agents as to the motivating factors of the seller to list the home and the buyer to purchase the home. You should be able to glean if the price produced through those negotiations is ultimately at arms length. A homeowners expectation of value without being tested by a potential buyer is just a wish of value that may or not be accurate.

 

[KHS445]

Not pointing any fingers or criticizing any of the previous respondents, but get off you high horse. In close to 100% of purchase transactions everyone eventually receives a copy of the purchase agreement which they are suppose to analyze and comment on. What are some of the major areas included in every purchase agreement? Sale Price? Financing - Conventional/VA/FHA/Etc.? Concessions? Just reviewing the contract and some simple math will tell you what the Sale Price/Estimated Value is and what the mortgage amount is. If it is a refi we are suppose to review and comment on all sales within the last three years. Guess what, if the property sold within the last three years and you talk with the property owner about any improvements and then you figure they had 20% equity, again you have a pretty good idea of the estimated value and the probably the loan amount. A little research at the Register of Deeds will most likely confirm if the loan was VA/ FHA/Conventional/Etc., or it may even come up when you are interviewing the homeowner.

People have said they can ignore what the homeowner tells them and what the real estate agent tells them, then go into a complete free fall when they receive a order form with a estimate of value and loan amount listed. Not real sure how you can claim to ignore information from one source and not the other. About the only way this information influences me a slight bit is if my opinion of value is significantly different I will make sure my comments directly or indirectly address the difference. Much the same way most everyone does it on a purchase money transaction when the sale price and the estimated appraise differ.

To me this is a non-issue and if it is the only potential bit of attempted influence you receive in your career, you are truly special. Get over it, do your job and move on.