Fannie definition of market value

[Meandering]

Undue stimulus

Interagency Guidelines released December 2010:
Each appraisal must contain an estimate of market value, as defined by the Agencies' appraisal regulations. The definition of market value assumes that the price is not affected by undue stimulus, which would allow the value of the real property to be increased by favorable financing or seller concessions.

https://www.appraisalinstitute.org/assets/1/7/GoingConcern_Presentation_8_17_2011.pdf

and

Page 9

https://www.FDIC.gov/news/financial-institution-letters/2010/fil10082a.pdf

You have to love the double speak. Favorable financing increases the "price" not the "value" of a property.

PRUDENT​

Reasonable careful or cautious. Of reasonable and good judgment.
TheLaw.com Law Dictionary & Black's Law Dictionary 2nd Ed.

Definition of PRUDENT • Law Dictionary • TheLaw.com

Legal definition for PRUDENT: Reasonable careful or cautious. Of reasonable and good judgment.

dictionary.thelaw.com

 

[RCA]

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.

No, we are not there yet, at least not in California:

Housing Affordability Index - Traditional

C.A.R.’s index tracking historical affordability trends throughout California under traditional assumptions

www.car.org

In 2006/7, housing affordability was often below 10% in many areas of California. We are now hovering around 27%. Q1 sees my county of San Mateo at around 19%. It will be lower this quarter for sure.

A run of the mill 1970 rancher, 2500sf, in San Mateo (city) on a 6,000 +/- lot can easily cost you $3M. You know, you have Google, Facebook, Apple, etc., here. Some of the richest companies in the world. And this is a pretty nice place to live. This county is right between San Francisco to the North and the heart of the Silicon Valley to the South.

I think prices have peaked in many areas of my county. But there are lower priced areas that are going to likely see increases. Then there is the push outward. For $3M, you can only get a plain 1970 rancher in central San Mateo, but go up to the North Bay, and you can get a really nice house for that amount. - Only if have to commute to Google in Mountain View or Apple in Cupertino everyday, that will be a pain to deal with.

 

[RCA]

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.

I think we are mincing words here. Like I said, the subject contract price should not be considered. Lender pressure to hit that value should be disregarded. The appraiser should just follow established and accepted protocol. That weak-minded appraisers (or simply trainees who are obliged to do what the boss says - until they can get out from under them) submit to lender pressure on such things is of course a fact, and has been witnessed by many who have worked in appraisal departments. You can get fired for not bowing down to such "requirements", and no one is stupid enough to tell you that, but you get the message, because you know, only old-timers around, drifters come and go "for some reason." One might argue that working for most appraisal companies as an employee is a lose-lose situation, unless you have good connections to the upper management. That is to say, if you don't comply with such pressure, you are on the way out. If you do comply, and trouble ensues which it surely will given time, you are out as the scapegoat. Lose-lose.

 

[ucbruin]

I remember having conversations with family in 2005 regarding prices skyrocketing....
2000-2005 increases were not sustainable forever....
When our next "2008" event happens, be it 2022, 2023, 2024, etc. does it really matter????

 

[Meandering]

PROCEDURES FOR ADJUSTING SALES FOR FAVORABLE FINANCING on JSTOR

The sale price of a tract of land may reflect more than the value of the real estate. If favorable financing accompanies the sale, the price also includes the v...

www.jstor.org

What Is an Effective Annual Interest Rate?​

The effective annual interest rate is the real return on a savings account or any interest-paying investment when the effects of compounding over time are taken into account. It also reveals the real percentage rate owed in interest on a loan, a credit card, or any other debt.


It is also called the effective interest rate, the effective rate, or the annual equivalent rate.

The Formula for Effective Annual Interest Rate Is

Effective Annual Interest Rate: Definition, Formula, and Example

The effective annual interest rate is the real return on an investment or the real cost of a loan.

www.investopedia.com

Bankrate expert weekly mortgage rate insight​

30 Year Fixed Mortgage Rate - Historical Chart​

Interactive historical chart showing the 30 year fixed rate mortgage average in the United States since 1971. The current 30 year mortgage fixed rate as of May 2021 is 2.95

 

[Elliott]

OI,
Why did you omit the 'concession' condition in the definition? If Fannie were concerned about the 'current market' they could modify the definition and we would all toe the line. They could add that "during times of short supply where there are multiple offers that market value is best determined by the highest offer" and any issues appraisers have would be settled practice.

Other than the 'concession' addition, because I saw it as Fannie wanting to expand ownership (which eventually ended in disaster), but I have no problems or issues with the definition and it conform to my estimated opinion as best and credible I can produce. What issues do you have with the definition?

 

[J Grant]

I think we are mincing words here. Like I said, the subject contract price should not be considered. Lender pressure to hit that value should be disregarded. The appraiser should just follow established and accepted protocol. That weak-minded appraisers (or simply trainees who are obliged to do what the boss says - until they can get out from under them) submit to lender pressure on such things is of course a fact, and has been witnessed by many who have worked in appraisal departments. You can get fired for not bowing down to such "requirements", and no one is stupid enough to tell you that, but you get the message, because you know, only old-timers around, drifters come and go "for some reason." One might argue that working for most appraisal companies as an employee is a lose-lose situation, unless you have good connections to the upper management. That is to say, if you don't comply with such pressure, you are on the way out. If you do comply, and trouble ensues which it surely will given time, you are out as the scapegoat. Lose-lose.

I agree with much of this, except I do believe the SC price of a subject should be considered - it is a market reaction.

But considering a subject SC price is not the same as doing all possible to hit that price, no matter what kind of contortions are involved.

As you note, there is enormous, if upspoken, pressure to hit that price ( or a high $ refi number, as high $ is desired outcome ) Btw I have had more trouble with blowback on a refi than purchase appraisals A minority of good clients that want the OMV rather than a number hit but seems to be a minority. (in my experience ). Most clients are in the middle, trying to balance OMV of good appraisals of a level of a value push here and there. A segment of clients are all out hit the number or orders stop /face get weeks of harassing ROV as "punishment"

Some appraisers have internalized the expectation that purpose of appraisal is hit a SC price or a high refi number. No client pressure needed. .

An appraiser with intention to hit a SC price or refi direction backs into value from price. That is a fast and easy process and fits a volume/speed business model. If I wanted to back into value from price I could triple my output. The only downside for number hitters is the possibility of put on bad actor list or complaint - but since that is uneven wrt consequence they consider the risk worth the reward. .

 

[glenn walker]

I agree with much of this, except I do believe the SC price of a subject should be considered - it is a market reaction.

But considering a subject SC price is not the same as doing all possible to hit that price, no matter what kind of contortions are involved.

As you note, there is enormous, if upspoken, pressure to hit that price ( or a high $ refi number, as high $ is desired outcome ) Btw I have had more trouble with blowback on a refi than purchase appraisals A minority of good clients that want the OMV rather than a number hit but seems to be a minority. (in my experience ). Most clients are in the middle, trying to balance OMV of good appraisals of a level of a value push here and there. A segment of clients are all out hit the number or orders stop /face get weeks of harassing ROV as "punishment"

Some appraisers have internalized the expectation that purpose of appraisal is hit a SC price or a high refi number. No client pressure needed. .

An appraiser with intention to hit a SC price or refi direction backs into value from price. That is a fast and easy process and fits a volume/speed business model. If I wanted to back into value from price I could triple my output. The only downside for number hitters is the possibility of put on bad actor list or complaint - but since that is uneven wrt consequence they consider the risk worth the reward. .

The risk is lowest for a number hitter because its hard to claim the appraiser over-inflated his/her value when ts at Contract price. At best all review can say is comps did mot support the Purchase contact price. Also numbers hitters receive very few complaints because everyone is happy with them. The refinance appraisals probably have higher liability because the appraiser has nothing to anchor his-her value to and for an-experienced appraiser refinances are not difficult but for newer ones its really hard for many to not have a target because they have no idea what to do without one. I became convinced that a Purchase contract was vital because we tested a group of appraisers years ago and gave 5 of them exactly the same data -comps on a sale that was like $150,000-We did not tell them what it had sold for and told them to report their OMV and bring to next office meeting. When we finally got together values ranged from about $130,000 to $160,000 and as I recall only one or two came close at $145K-$150K after that I was convinced these dunderheads needed Purchase Contracts and on refinances all the lenders told the appraisers what they were looking for so there were no surprises. Same game today just played a different way now .

 

[Meandering]

Actually,

in areas with lockdowns,
during the lockdowns,

The point could absolutely be made that the market was not "open", therefore the "competition" was not "typical"


.

 

[J Grant]

The risk is lowest for a number hitter because its hard to claim the appraiser over-inflated his/her value when ts at Contract price. At best all review can say is comps did mot support the Purchase contact price. Also numbers hitters receive very few complaints because everyone is happy with them. The refinance appraisals probably have higher liability because the appraiser has nothing to anchor his-her value to and for an-experienced appraiser refinances are not difficult but for newer ones its really hard for many to not have a target because they have no idea what to do without one. I became convinced that a Purchase contract was vital because we tested a group of appraisers years ago and gave 5 of them exactly the same data -comps on a sale that was like $150,000-We did not tell them what it had sold for and told them to report their OMV and bring to next office meeting. When we finally got together values ranged from about $130,000 to $160,000 and as I recall only one or two came close at $145K-$150K after that I was convinced these dunderheads needed Purchase Contracts and on refinances all the lenders told the appraisers what they were looking for so there were no surprises. Same game today just played a different way now .

Not true for a field review appraisal. The review asks agree or disagree with the OMV, it does not ask agree or disagree with the CS price. I do concur that for origination client, an appraisal meeting a S price might get a pass . But not all clients ...some are more review for value oriented than others. -

There is some risk for number hitters being placed on a lender do not use list or a Fannie watch list / board complaint. But those ramifications usually come years later, and may never come at all-,

Problem with current system is appraisers are kind of caught.... they can get punished on front end by clients who stop sending work for "low" appraisals, or back end later if they inflated value. A choice between are you in it for the Short term or long term....