MV opinion vs a price estimate

[JeffSH]

These are different types of value, but the appraiser is still giving a value opinion in each ( not giving a price opinion ). Using a different definition of value though, will often yield a different most probable price for the value opinion.

You: "My opinion of market value is $300,000"

Client: "Great! That means I can sell my home for $300,000. The purchase price will be $300k based on your reasonable exposure time estimate."

You: "No. Actually, the value opinion I gave is not the same as price. I don't determine a price. Just value"

Client: "What price can I sell my house for?"

 

[RCA]

You: "My opinion of market value is $300,000"

Client: "Great! That means I can sell my home for $300,000. The purchase price will be $300k based on your reasonable exposure time estimate."

You: "No. Actually, the value opinion I gave is not the same as price. I don't determine a price. Just value"

Client: "What price can I sell my house for?"

You are not making much sense, if any at all.

Let's back up a bit. It appears you are talking about an appraisal for a hypothetical seller who wants to know what he should expect to actually sell it for. For the seller to claim "The purchase price WILL BE $3000k ..." is not called for.

You should have said "SHOULD BE ...". That would reflect common sense. What's wrong?

"What can I sell my house for?" has a couple different meanings. Do you mean: "What should I list my house for?" or do yo mean "What can I expect to sell my house for?" These are by definition, soft values that are only estimates of what will occur in a follow-up transaction to sell the house.

Selling can actually be a fairly complex event at the psychological, sociological and business level (and yes, I'm leaving out a few things such spying and intelligence gathering and analysis ...)

 

[JeffSH]

"What can I sell my house for?" has a couple different meanings. Do you mean: "What should I list my house for?" or do yo mean "What can I expect to sell my house for?" These are by definition, soft values that are only estimates of what will occur in a follow-up transaction to sell the house.

"What price can I sell my house for" has one meaning. An appraisal provides a value with a reasonable exposure time. This directly correlates to the sale price and marketing time. Sure, it's hypothetical based on the effective date and the constraints of the market value definition. What actually transpires could be different for a multitude of reasons. But shouldn't we strive to produce values that correlate to the most probable sale price based on the realities of the actual market?

If I did ten private appraisals to determine reasonable sale prices, and seven of those ten homes ended up selling for more than a 20% variance to my MV, this would concern me. I wouldn't just waive my hand and yell "price doesn't equal value!"

I realize that we do not predict the future, and in these crazy times an appraisal is only good for one day. This is not how it's been for the majority of my career.

 

[glenn walker]

A Refinance is really hypothetical value as there is no sale -there is no agreement between a buyer and seller and therefore the term market value as used by Fannie & Freddie certifications is not correct. If done correctly they would be using the definition as ( FMV ) "Fair Market Value" which is used by the IRS and other agencies when developing values for gifts or donations.

 

[Carnivore]

Jgrant This is a pretty good read. I may help stop you from chasing your tail.

The difference between market price and market value in real estate

In real estate, many agents suggest that it all comes down to price. Is it true that a property sells just because of price?

www.inman.com

 

[J Grant]

"What price can I sell my house for" has one meaning. An appraisal provides a value with a reasonable exposure time. This directly correlates to the sale price and marketing time. Sure, it's hypothetical based on the effective date and the constraints of the market value definition. What actually transpires could be different for a multitude of reasons. But shouldn't we strive to produce values that correlate to the most probable sale price based on the realities of the actual market?

If I did ten private appraisals to determine reasonable sale prices, and seven of those ten homes ended up selling for more than a 20% variance to my MV, this would concern me. I wouldn't just waive my hand and yell "price doesn't equal value!"

I realize that we do not predict the future, and in these crazy times an appraisal is only good for one day. This is not how it's been for the majority of my career.

I also believe our opinion of market value should have a reasonable relation to an actual price - as long as market conditions were correct etc I like to expect around a 5% variance and when I appraise for a refinance or list price appraisal I often see it sell for closer than 5% !!

However, we still are giving market value opinions. (as a price equivalence)
If it is useful for a client to discuss possible prices around my opinion of market value, I can either comment on that in the appraisal, or have a verbal conversation about it.

For example, if someone wants to know "what can I sell my house for ?
I give my opinion of market value, since the purpose of the appraisal was an opinion of market value.

Then I can add a comment " The opinion of market value is $300,000 with a market exposure estimate of 30-60 days. The opinion of market value is based on the most probable price and developed in the appraisal. However, actual prices and offers on a property can vary. Purchase offers might come in on the subject both above and below the market value opinion ."

 

[J Grant]

Jgrant This is a pretty good read. I may help stop you from chasing your tail.

The difference between market price and market value in real estate

In real estate, many agents suggest that it all comes down to price. Is it true that a property sells just because of price?

www.inman.com

I am not the one chasing my tail (but thanks for the informative post ) I very well understand the difference between market price and market value. I did sell RE as an agent for 5 years in a past life. The post is, it is written for the general reader and does not go into USPAP

My issue is appraisers saying we do not give market value opinions, appraisers give price opinions, or a market value opinion is the same thing as a price opinion and it is just semantics

 

[J Grant]

A Refinance is really hypothetical value as there is no sale -there is no agreement between a buyer and seller and therefore the term market value as used by Fannie & Freddie certifications is not correct. If done correctly they would be using the definition as ( FMV ) "Fair Market Value" which is used by the IRS and other agencies when developing values for gifts or donations.

BOTH a refinance and a purchase appraisal are a hypothetical value !!!!!! (from a presumed transaction How can you not understand that the SCA is a presumed, or hypothetical value ?

The fact that there is an actual sales contract on the subject does not change this. So to say the term market value as used by Fannie and Freddie Certification is not correct when there is no actual sale...OMG ...

 

[glenn walker]

I am not the one chasing my tail (but thanks for the informative post ) I very well understand the difference between market price and market value. I did sell RE as an agent for 5 years in a past life.

My issue is appraisers saying we do not give market value opinions, we give price opinions, or a market value opinion is the same thing as a price opinion ( and similar )

BOTH a refinance and a purchase appraisal are a hypothetical value !!!!!! (from a presumed transaction How can you not understand that the SCA is a presumed, or hypothetical value ?

The fact that there is an actual sales contract on the subject does not change this. So to say the term market value as used by Fannie and Freddie Certification is not correct when there is no actual sale...OMG ...

No I do not think Fannie-Freddies definition is correct because A Fair market ( value vs. market value ) is not the same thing. So whats the real difference?

(FMV) is a true hypothetical value—it is determined based on the estimated amount a buyer and seller would likely agree upon under “normal” conditions.

Market value, by contrast, is the ( price at which a property will actually sell for ) and in a Purchase Appraisal we have a Purchase Contract showing us what price $$ and terms the two parties have agreed on. Therefore it also has most of the definitions of market value being met. In a refinance much of that criteria doesn't even exist and the appraiser is not considering an-actual sales price.

The bottom line is I don't care what definition F & F want to use because I cannot change their Pr-Printed definitions or their certifications and I just sign it. BUT on a Refinance I am not really appraising it for market value because with out a buyer all I am doing is trying to see what a probable sales price would be if they listed it and sold it versus refinancing it . In my opinion in Loan Production the definition of market value should not be the same on a purchase as whats used on a refinance but as previous stated I will sign their silly forms definition.

 

[J Grant]

No I do not think Fannie-Freddies definition is correct because A Fair market ( value vs. market value ) is not the same thing. So whats the real difference?

(FMV) is a true hypothetical value—it is determined based on the estimated amount a buyer and seller would likely agree upon under “normal” conditions.

Market value, by contrast, is the ( price at which a property will actually sell for ) and in a Purchase Appraisal we have a Purchase Contract showing us what price $$ and terms the two parties have agreed on. Therefore it also has most of the definitions of market value being met. In a refinance much of that criteria doesn't even exist and the appraiser is not considering an-actual sales price.

The bottom line is I don't care what definition F & F want to use because I cannot change their Pr-Printed definitions or their certifications and I just sign it. BUT on a Refinance I am not really appraising it for market value because with out a buyer all I am doing is trying to see what a probable sales price would be if they listed it and sold it versus refinancing it . In my opinion in Loan Production the definition of market value should not be the same on a purchase as whats used on a refinance but as previous stated I will sign their silly forms definition.

I guess you get away with it because you do not disclose what you are actually doing, you instead sign off on a Fannie/Freddie form using a MV definition you oppose, then you do your own thing and try to see a probable sales price if they sold it. I don't get it, because the hypothetical sale in a market value definition accomplishes something similar , though not exactly the same. USPAP and ethics -do what you said and say what you do. You certified with signature you used the printed MV definition, but you bypassed it and used a not disclosed MV definition you invented that suits you.