Fannie definition of market value

[J Grant]

So the question for discussion (and I am keeping my opinion out of it for now) is this--what element of the definition above is being violated by an opined market value that is more reflective of the crazy bidding wars, than one that seems easily supportable by recently sold comparables? The only phrases that seem to be open for discussion might be undue stimulus (you have to be clear on this if you use it) or perhaps well informed/advised.

You are asking the wrong question.
It is not the definition that is being violated, it is the appraisal that is being violated. The appraisal is designed as a method to produce a specific result ( a OMV) and integral to the method is reliance on sold comps. THE END. When appraisers turn into deal advocates by putting the reliance instead on a pending or SC , they abandoned accepted standards of appraisal SOW./methodology

 

[ucbruin]

In this market, why would any appraiser give list/pending price (list price found on its MLS listing sheet) any consideration????

 

[J Grant]

A) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, my (our) opinion of the market value, as defined, of the real property that is the subject of this report is ( X $)

A) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, A) my (our) opinion of the market value, ( A: is the $ X opinion of market value developed from appraisal ) as defined, ( B: is X $ as defined -X$ if sold at MV definition terms ) of the real property that is the subject of this report is X$


The above from URAR statement, in bold version I inserted A and B to clarify we derive OMV from the appraisal, which occurs at a set MV definition terms (as defined ) to produce a most probable price.

We are not giving a most probable price opinion. (unless we state it as purpose of appraisal )
We are giving a market value opinion , which occurs at a most probable price equivalence, -(most probable price. which in an appraisal, transacts at the terms in the MV definition )
Therefore, the most probable price out in the real world if it occurs affected by concessions, atypical motivations etc might differ from the appraisal MV opinion. In stable markets the two often line up nicely. In unstable markets / rapid decline or appreciation, the two differ more often )

Some appraisers start to panic when the the OMV is differing from a price (or refi target ), and they thus abandon appraisal accepted standards and start searching for ways to "support" an a price. It goes without saying the appraisal uses real world data and prices , to address those who scream we ignore the market.

Zillow / RE sites/AVM's /CMA's reflect market prices back in a mirror . Only an appraisal produces an opinion of market value supported by an appraisal.- which can produce an OMV different from an actual price. . Which can make us unpopular But remember, the very reason some hate us, is the very reason we exist as a profession.)

You folks might want to look up reason Fannie/freddie are exploring alternate valuation and use waivers -their studies show 90% or more of appraisals hit SC price which they feel is such a high number that they might as well use something else- look up the study on internet.

 

[RCA]

In the May 29th edition of "The Economist" there is an article "An Investment Bonanza Is Coming", that explains it nicely:


In pariticular look at the chart:



There is a pretty good chance that house prices are going to continue to rise and stay up. Inflation over the past 12 months, ending April 2021, is a hefty 4.2%, but the government is not prepared to curb spending or tighten credit just yet.

One could argue, that you better buy a house, while the buying is not any worse than it is.

 

[J Grant]

There is a pretty good chance that house prices are going to continue to rise and stay up. Inflation over the past 12 months, ending April 2021, is a hefty 4.2%, but the government is not prepared to curb spending or tighten credit just yet.
One could argue, that you better buy a house, while the buying is not any worse than it is.

Whatever prices do, they do. Our appraisals reflect as they use prices of sold comps and listings. Which still does not relieve us of making a MV opinion rather than a price opinion.

WRT home prices, some of it is fueled by pandemic induced population shifts with a good deal of it fueled by low interest rates. The low rates also means more turning to RE as an investment since savings gives off close to zero return. It is a given that if mtge rates rise more than X % tolerance it dampens prices. Always has and always will, since so much of RE purchases use financing.

Unless it is a wealthy area or an unending stream of cash rich buyers- the buyers who use financing at some point hit a ceiling of price affordability because their income has to qualify for a mortgage. And actual income/earnings, even if wages rise, rarely match the wild acceleration we see in home prices.

 

[RCA]

A) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, my (our) opinion of the market value, as defined, of the real property that is the subject of this report is ( X $)

A) Based on a complete visual inspection of the interior and exterior areas of the subject property, defined scope of work, statement of assumptions and limiting conditions, and appraiser’s certification, A) my (our) opinion of the market value, ( A: is the $ X opinion of market value developed from appraisal ) as defined, ( B: is X $ as defined -X$ if sold at MV definition terms ) of the real property that is the subject of this report is X$


The above from URAR statement, in bold version I inserted A and B to clarify we derive OMV from the appraisal, which occurs at a set MV definition terms (as defined ) to produce a most probable price.

We are not giving a most probable price opinion. (unless we state it as purpose of appraisal )
We are giving a market value opinion , which occurs at a most probable price equivalence, -(most probable price. which in an appraisal, transacts at the terms in the MV definition )
Therefore, the most probable price out in the real world if it occurs affected by concessions, atypical motivations etc might differ from the appraisal MV opinion. In stable markets the two often line up nicely. In unstable markets / rapid decline or appreciation, the two differ more often )

Some appraisers start to panic when the the OMV is differing from a price (or refi target ), and they thus abandon appraisal accepted standards and start searching for ways to "support" an a price. It goes without saying the appraisal uses real world data and prices , to address those who scream we ignore the market.

Zillow / RE sites/AVM's /CMA's reflect market prices back in a mirror . Only an appraisal produces an opinion of market value supported by an appraisal.- which can produce an OMV different from an actual price. . Which can make us unpopular But remember, the very reason some hate us, is the very reason we exist as a profession.)

You folks might want to look up reason Fannie/freddie are exploring alternate valuation and use waivers -their studies show 90% or more of appraisals hit SC price which they feel is such a high number that they might as well use something else- look up the study on internet.

Well, it shouldn't surprise anyone that 90% of appraisals hit the SC price. That is kind of the definition of MV - it should be based on actual closed sale prices. That is the holy grail. If Fannie/Freddie don't want to buy loans at 80% of LTV because they regard the market as unstable, then they can change their underwriting. Understand, the appraiser should be using closed sales values for support, i.e. not the subject contract.

Your statement about waivers doesn't make any sense; I doubt it is anything close to correct. Waivers have their use, and in fact they can be quite legitimate: https://www.rocketmortgage.com/learn/appraisal-waiver#:~:text=An appraisal waiver shortens the,the in-person appraiser visit.&text=An appraisal waiver allows qualified,process when buying a home.

The problem with most appraisers is not that they are using the latest greatest sale prices, it is that they only think they are using them. By the time they get done injecting their personal out of thin-air adjustments for intangible/subjective features such as condition, quality, view, functional utility and so on, they have effectively altered the sale price of the comparables. They frigging don't know what they are doing -- most of them [OK, my guess, as I have only ever seen a very small fraction of other appraisals in existence.]

 

[RCA]

There is a pretty good chance that house prices are going to continue to rise and stay up. Inflation over the past 12 months, ending April 2021, is a hefty 4.2%, but the government is not prepared to curb spending or tighten credit just yet.
One could argue, that you better buy a house, while the buying is not any worse than it is.

Whatever prices do, they do. Our appraisals reflect as they use prices of sold comps and listings. Which still does not relieve us of making a MV opinion rather than a price opinion.

WRT home prices, some of it is fueled by pandemic induced population shifts with a good deal of it fueled by low interest rates. The low rates also means more turning to RE as an investment since savings gives off close to zero return. It is a given that if mtge rates rise more than X % tolerance it dampens prices. Always has and always will, since so much of RE purchases use financing.

Unless it is a wealthy area or an unending stream of cash rich buyers- the buyers who use financing at some point hit a ceiling of price affordability because their income has to qualify for a mortgage. And actual income/earnings, even if wages rise, rarely match the wild acceleration we see in home prices.

Well, yes, I am in an area with money. Lots of money. California has a $75B surplus this year. Things are booming, - considering.

 

[chad hampton]

This bubble is worse than 05-07. I've talked to a few sellers who are cashing out and renting for a year or 2. Waiting for the crash. Maybe buy their old home back and half the price.

 

[J Grant]

The problem with most appraisers is not that they are using the latest greatest sale prices, it is that they only think they are using them. By the time they get done injecting their personal out of thin-air adjustments for intangible/subjective features such as condition, quality, view, functional utility and so on, they have effectively altered the sale price of the comparables. They frigging don't know what they are doing -- most of them [OK, my guess, as I have only ever seen a very small fraction of other appraisals in existence.]

Your statement most appraisers don't know what they are doing is flat out wrong. Esp considering the scrutiny appraisals receive.

The SOW effectively alters the sale price of the comparable ( with applied adjustments ) that is the point of an appraisal -to find the equivalence between prices and market value -and market value is supposed to account for physical and locational differences between properties.
With all due respect, some of your comments about appraising sound like they come from planet MARS...

 

[J Grant]

Well, it shouldn't surprise anyone that 90% of appraisals hit the SC price. That is kind of the definition of MV - it should be based on actual closed sale prices.

The market value definition is not the same as a market value opinion.

In a stable market one expects higher % of SC and OMV to be the same . But in a declining or rising markets esp rapid pace, one would expect more to differ.

Fannie and freddie seem to take issue with per their study 90% of appraisals hit SC price- what they think is a better % idk. I believe fewer appraisals would hit SC price if the business pressure to do so were removed, yet the agencies refuse to address that. The HVCC and AMC idea of firewall did little to remove the pressure, it just shifted it from front end to back end. Add in that some appraisers poorly trained or take on role of deal advocates - that needs to be addressed as well. But imo the agencies dont really want to solve it as means a few more deals would "die" which would slow the profit train.