Assumable FHA Loan

[sputnam]

You never adjust the subject property for anything. You adjust the comparables.

 

[J Grant]

There are very few assumable mortgages now; this one must be ancient. I was not aware FHA granted assumable loans

 

[Ariba]

There are very few assumable mortgages now; this one must be ancient. I was not aware FHA granted assumable loans

Already 2 this month.

You never adjust the subject property for anything. You adjust the comparables.

So this is what you are saying, "adjust the comparables" for the subject having an assumable loan? Is that right?

 

[Ariba]

I'm telling you that no matter how good your explanation, the GSE's will not accept a positive adjustment on the financing concession line. This has been confirmed multiple times by multiple people here on the forum, I've never made one myself. Your mileage might vary. The only problem with the "give it a try and see what happens approach", is that several months or years later it might generate a repurchase demand for your client, with all fingers pointing directly at you.

So the saving for the homeowner in this example is $450,000 over the term of the loan but according to the GSE's, the assumable loan has no value? Are you agreeing that the assumable loan has no value? Of course, it has an impact. Buyers who could not afford to buy this property at 6% can now afford the mortgage payment at 3%.

 

[Mike Ault]

So the saving for the homeowner in this example is $450,000 over the term of the loan but according to the GSE's, the assumable loan has no value? Are you agreeing that the assumable loan has no value? Of course, it has an impact. Buyers who could not afford to buy this property at 6% can now afford the mortgage payment at 3%.

When you appraise a piece of real estate, you don't care whether it sold for $0 or $1 trillion. You don't care what financing concessions were associated with the sale. That only becomes important when you use your subject as a comparable in your next appraisal. That's when you you are responsible for analyzing & reporting the impact the concession had on the sales price. We adjust how the "site & improvements" compare to the subject in the sales comparison grid, not the "financing".

 

[J Grant]

So the saving for the homeowner in this example is $450,000 over the term of the loan but according to the GSE's, the assumable loan has no value? Are you agreeing that the assumable loan has no value? Of course, it has an impact. Buyers who could not afford to buy this property at 6% can now afford the mortgage payment at 3%.

An assumable loan typically has value. However, we appraise the subject as the MV definition states, as a sale not affected by concession or creative financing. The price of the subject can affect the/value impact of the assumable loan on the price of the subject.

For example, if your subject's SC price is $500,00 but you find similar comps without an assumable loan sold for the $400,00 range, then the impact on price is 100k, and your subject then would appraise for less than the SC price.

On another post you asked about adjusting the comps to the assumable loan of the subject; that is not correct - the subject tis always assumed to have "sold" at the terms of sale in the MV definition ( not affected by concessions or special financing ) - thus if comp 1 was conventional financing or cash there would be no adjustment for it to teh subjected which is assumed to be at conventional terms or cash equivalence. If comp 2, for example, has a $20,000 concession affecting the price, then you would adjust for the concessions since the subject price is assumed to be not affected by concessions for the appraisal valuation purpose.

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

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

 

[sputnam]

Already 2 this month.

So this is what you are saying, "adjust the comparables" for the subject having an assumable loan? Is that right?

No... I said what I said. You can't just say... 'adjust the comparables because there is an assumable loan'. It's a market question. You have to analyze data to know.

 

[J Grant]

No... I said what I said. You can't just say... 'adjust the comparables because there is an assumable loan'. It's a market question. You have to analyze data to know.

The subject would not have an assumable loan for the MV valuation purpose. It would be sold at the terms in the MV definition of the assumed "sale" in the SCA.

The fact that the subject has an assumable loan would be addressed in the contract analysis and also could be relevant if the MV opinion is different than the CS price as an explanation for it.

 

[Tom D]

did that assumable rate have a positive affect on the salability, or did it cause the sale price to be higher. won't know that until you are pretty much done the appraisal. if the sale price wasn't higher because of it, then it only had a positive affect on it's marketability, maybe. not everyone has the extra cash to cover that difference in balance, so it could also have been limited to a very small buyer pool affecting marketability. if you're breaking a new high because of it, then you have to figure out the contribution. current interest rate- adj rate, maybe capitalize it for an adjustment or explain it.
if the sale price is in line with the other sales, then maybe it only affected it's marketability, maybe not. i would forget about it if the sale price was in line with normal financing comps prices.

 

[J Grant]

did that assumable rate have a positive affect on the salability, or did it cause the sale price to be higher. won't know that until you are pretty much done the appraisal. if the sale price wasn't higher because of it, then it only had a positive affect on it's marketability, maybe. not everyone has the extra cash to cover that difference in balance, so it could also have been limited to a very small buyer pool affecting marketability. if you're breaking a new high because of it, then you have to figure out the contribution. current interest rate- adj rate, maybe capitalize it for an adjustment or explain it.
if the sale price is in line with the other sales, then maybe it only affected it's marketability, maybe not. i would forget about it if the sale price was in line with normal financing comps prices.

You are correct in that the Sale Contract Price of the subject could be affected/inflated by the assumable loan = - which is addressed in the contract analysis, and also to explain a difference between SC price and the value opinion., if there is one.

However, on the sales grid, the subject would not have an assumable loan - just as if there are concessions it is not in play - the subject is assumed to have "sold" as of the effective appraisal date at the terms and conditions in the MV definition - a probable price not affected by concessions or creative or special financing )