Analysis Of Prior Sales: A Hidden Retrospective Appraisal?

[Michael P Jacobs MAI]

Thought for the day while a report is printing... Has anyone considered that when an appraiser analyzes a recent sale (or even listing) history of a subject property or even a comparable - a USPAP requirement - this creates a retrospective appraisal? Theoretically, it would require the same level of due diligence (i.e. separate relevant approaches) as any other value observation in the appraisal report, and arguably an authorized user could depend upon it (litigation purposes, primarily, extending to any comparables so-analyzed). I'm just thinking about this because I happen to be using a comparable that the appraisal client could potentially litigate over and they're the type...

Whether we'd be held responsible for the implied expanded scope is unlikely, but hiring a lawyer to explain it WOULD be.

OK, back to work everybody...

 

[J Grant]

Imo, since we are not giving a value opinion about a prior sale, it is not an appraisal. I am very careful when I present any analysis that I avoid giving value opinions. If I refer to the price I stay out of that language though perhaps it has crept in here and there.

I dislike the word analysis for this and feel it should be scaled back to "review". Because in all honesty, what does a prior sale have to do with today's value opinion? Typically, nothing, am I right? I can understand why clients want to know about a prior sale, and especially with subject, re was it recently flipped, or a big change in value since prior sale.

I find more and more content is being asked for/required and all of it can be used against appraiser if they want it to. They can either say we did not analyze prior sale "enough" , or they can say we referenced value and therefore our analysis is a retrospective appraisal/where is the work file.

Lenders now require an explanation why the value is different than last prior sale if more than 10% different. That does imply a benchmark appraisal assignment , compare last sale to today's referencing value.

I avoid using the word value in such scenarios. I might say something along the lines of "Current effective date market value opinion is derived with subject in present upgraded condition and using the most recent comps and listing data. The prior sale price reflected the subject in original dated condition at the time and occurred in a different market cycle. "

 

[bnmappraisal]

Lenders now require an explanation why the value is different than last prior sale if more than 10% different

Many, Many, MANY do require this now (and have for a while). I sort of understand where it comes from; flips. But when a sale happened 2 1/2 yrs ago and the "increase" is 11% ... that's always a fun stip to get

I, personally speaking, don't like it! It implies that yes, as Michael points out, we're theoretically doing a retrospective appraisal. I think a good lawyer could pick that apart bit by bit if they wanted to do that. Good thread Michael!

 

[J Grant]

I understand why they want it, still puts us in the bind of avoiding doing a retrospective apprasial, or a benchmark comparison appraisal (former "value" being the benchmark"

That is why I avoid using words such as change of value, increase in value, or comments that the prior sale was below or above market value. Best to avoid "lower than " or "higher than" your OMV, which implies a benchmark value of prior sale. I say the prior sale reflects (whatever applies, it was an REO sale, bought by investor to remodel and resell , or simply that it was an arms length sale purchased in a different market cycle. It might be appropriate if applicable to say the market shows appreciation ( or decline) since prior sale date. But is even that comment advisable?

Sometimes there is no clear explanation for why it sold for X$ when it did especially in a stable market. I wasn't there, I don't know why they paid what they did and I did not appraise the darn thing back then.

 

[DWiley]

Many appraisers do make inappropriate statements about prior sales. We have been addressing this in our training for the last several years. For example, when addressing prior sales, the appraiser should NOT say that the prior sale was "below market value." (See that a lot in REO appraisals). If one says think like that, then, yes, one is providing a "hidden" (and often undocumented) appraisal opinion.

 

[J Grant]

Good remind re D Wiley.

Do you think the analysis should be price neutral ( never use the words low or high), or might it be appropriate to comment , "the prior sale price was lower than prevailing prices at the time", or simply avoid any referece to low high and comment such as:
" The prior sale price reflects that it was sold in dated condition to an investor buyer for all cash"

 

[residentialguy]

Many appraisers do make inappropriate statements about prior sales. We have been addressing this in our training for the last several years. For example, when addressing prior sales, the appraiser should NOT say that the prior sale was "below market value." (See that a lot in REO appraisals). If one says think like that, then, yes, one is providing a "hidden" (and often undocumented) appraisal opinion.

REO typically sell below market value, as defined. Yes, I said it. Do I need a million work files now?

answer: no, that's just silly

 

[J Grant]

This brings up another issue:

Recap: asking appraiser to comment about difference between prior sale and eff date our OMV is clearly an issue as see, and has to be avoided going into retrospective appraisal territory, or benchmark value assignment (why is today's value higher or lower than last prior sale $ amount value)

The issue is similar imo to asking why our OMV is different than the SC price (when it's different whether higher or lower). Does this not also creae a second, benchmark value assignment? Because when they ask us to do that, what is supposed to be the benchmark, the CS price ( and then a defensive explantion of why our OMV differs), or is the benchmark supposed to be our OMV, and then an explanation of why CS price differs.

While I understand client interest ( customer relations, someting to appease upset RE agent or borrower with), from appraisal viewpoint it should not be asked. Why is the price on contract different from the OMV? BECAUSE THE SALE PRICE WAS NEGOTIATED PRIOR TO THE APPRAISAL BY PARTIES UKNOWN TO APPRAISER. Considering that, why is there a client expectation for them to be the same, and a defensive kind of explanation made when they differ? (esp since certs caution against appraising for an outcome such as approval of a mortgage finance loan).

If the CS price is analyzed and shows concessions or non arms length, that explains when those things are present. When those factors influencing price are not present, bottom line is the SC price is negotiated by vested interest parties prior to the appraisal value opinion developed. Obviously, the appraisal itself shows why the OMV is what it is, and not higher or lower to a CS price.

Anone else feels these issues are similar, asking for an explanation of a value difference between prior sale and OMV, and asking for an explanation of value difference between CS price and OMV?

 

[residentialguy]

No...some appraisers take this "that's an appraisal" way too far. Work files and ethics are necessary for assignments. My house would sell for about $350k. I don't need a work file to tell you this. There is no client and I did not accept any assignment for that opinion

 

[Mark K]

.. Has anyone considered that when an appraiser analyzes a recent sale (or even listing) history of a subject property or even a comparable - a USPAP requirement - this creates a retrospective appraisal?

How about when an appraiser "analyzes" and opines about a legal document, the Sales Contract? Is this practicing law (in most cases) without a license? Seems like it to me.