• Welcome to AppraisersForum.com, the premier online  community for the discussion of real estate appraisal. Register a free account to be able to post and unlock additional forums and features.

Appraisal higher than contract price

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
I know you love that term, but...

We are not hired to deliver a "reasonable expression of the concept" of market value, we are hired to deliver a POINT VALUE , which is a heck of a lot harder to derive. Some appraisers have trouble with the fact of a point value, since other numbers clustered close around it could also be used. Still, we are tasked with the point value, and the fact that other numbers are close at the finish line or reconciliation. If it a purchase, and the SC price and appraisal OMV value are the same $ numerical amount -$260,000, example - . then the SC at 260k supports the MVO of 260k -(not the other way around )


It is frustrating when our OMV is a smaller amount less than, or more than the MVO. In either case, best practice is to reconcile at what the appraisal supports - but we all know it is not a problem to parties or client when we appraise a small increment abouve the SC price, but it sure is when we appraise that same increment below - bringing enormous pressure to "push" that last bit of value up.
WRT to lender deciding the LTV number for a for a loan within a small % of the appraisal MV - though seems they can, they are reluctant to since then they take the liability for it.


I find it ironic that Fannie/freddie appraisal waivers do the exact thing they prohibit appraisers from doing - they declare the market value to match a lender's desired number in a refinance, or it is the SC price ( as long as both cases it meets some other criteria )

The market is extremely interesting now - for the first time ever I am seeing a sizeable # of contracts with a clause where buyer agrees to pay the CS price regardless of appraisal, or agrees to pay X $ over the appraisal value. Fine by me, I don't have an ego , if they want to pay over my MVO, go for it !
If you think that a $1M value conclusion is in any way more meaningful to their decision than concluding that a $1.005M contract price can *also* be considered an expression of MV then you're just not using common sense.

If we had ever meant "precise and not misleading to intended users" we would have said it that way.

Moreover, you don't want to lose sight of the fact that the reason we typically round out our value conclusions is to acknowledge their imprecision.
 

Fernando

Thread Starter
Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
2 words: Final Reconciliation

Most of our appraisal assignments are “cookie-cutter, no-brainers” in that they are straight forward. As a result, so are our FR comments. We have to remember the importance of the reconciliation. It is a summary of everything we did and how we arrived at our value and conclusions. If you do a good job in explaining and “selling” your work, no one will question you, no matter how it differs from the contract price.

In your situation, I would ask the broker how they arrived at the contract price. Even with arms length sales, there could be abnormal buyer/seller motivations, I.e., seller has a house under contract or a job out of state and wanted a quick sale. It is ok to talk about that (even though it is technically not necessary) and point out that “my opinion of market value is based upon the stated market exposure time and that a higher sales price could have been obtained if exposed for longer than the x days it was listed before the offer was accepted.”
I asked and agent admitted price was low. It was a "clean" deal with no contingencies.
Agents love simple easy deals so they can get their commissions.
I have to admit that during this time, prices were changing significantly with few sales selling over "market value".
You can argue with the most recent sales, prices are being pushed to new high values. Or you can say the several recent sales still not conclusive in justifying higher market value.

I had a similar situation when I bought a property early this year. After my clean offer was accepted, the agent told me, "You got a good price. I didn't realize the high interest in my listing."
It's all in a matter of timing. Lucky Fernando.:giggle:
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
If you think that a $1M value conclusion is in any way more meaningful to their decision than concluding that a $1.005M contract price can *also* be considered an expression of MV then you're just not using common sense.

If we had ever meant "precise and not misleading to intended users" we would have said it that way.

Moreover, you don't want to lose sight of the fact that the reason we typically round out our value conclusions is to acknowledge their imprecision.
.I am not going to say a CS price of one million ( or one million and five ) is a "reasonable expression of market value" , because I am not engaged to appraise a contract price ! I Am engaged to appraise a property. If there is a sales contract on the property, and the SC price is equivalent to my market value opinion of the property, then the CS price supports my MV opinion .

I am aware that 5k plus or minus wrt to a million dollar price or value is likely meaningless ... whether our MVO as a point value is $1,00,000, or $ 1,00, 005, we have to credibly support it. If the credibly supported value for that property is really $950k, who cares if the wrong value was one million or one million and five? .

We are aware that if a point value is 160k it usually is possible it also could be 59k or 161k. So pick one- but pick one that makes sense. The slightly higher point value might reflect a rising market or a superior subject property, the slightly lower point value might reflect a declining / stagnant market or inferior subject. There should be a reason behind our decision.
 
Last edited:

George Hatch

Elite Member
Gold Supporting Member
Joined
Jan 15, 2002
Professional Status
Certified General Appraiser
State
California
Having already explained to you numerous times, if you worked for me and you pulled this even once I would fire you for,....., well, for several reasons.
 

J Grant

Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
Having already explained to you numerous times, if you worked for me and you pulled this even once I would fire you for,....., well, for several reasons.
"pulled what"? I have no idea what you are talking about !
 

KYLECODY

Senior Member
Joined
Apr 26, 2003
Professional Status
Certified Residential Appraiser
State
Arizona
So how about new construction lately?? Build times are 8 plus months so the things closing now went under contract in September, roughly 15% ago in my market. Even the similar resales are now well above the new construction contract/sales prices closing currently. I make time adjustments and come in significantly higher than purchase price but I wonder how many appraisers are just using the most recent sales from the builders(contracts 8 months old) and hitting the number on the nose because they are skerrred?.
 

Fernando

Thread Starter
Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
I'm seeing this property in which the sales price is below list price.
It's been awhile since this happened so I asked listing agent of this situation hoping to get some insight.
She said it sold below market and you should be able to appraise at list price or even $100,000 more.
I got to give her credit. Listing agent doing her job to influence me.
 

Fernando

Thread Starter
Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
More like it was overpriced to begin with
That's what I thought. I can't make any judgements until I go see it.
I was planning to see it tomorrow but my 2nd shot go me fatigue and not sure if I'm ready to see the property tomorrow.
 

Bert Craytor

Senior Member
Joined
Jun 27, 2017
Professional Status
Certified General Appraiser
State
California
It's been awhile since my appraised value is higher than contract price.
Recent sold comps have pushed values high. I'm doing time adjustments.
Haven't decided appraised value yet in how much higher.
Would my appraisal be under more scrutiny if appraised value be 4% higher?
Or less than 3% be less problem with lender?

Statistically, if you are appraising without bias, 50% of the time you should be over contract and 50% of the time under. Have you changed your bias?

Anyway there are two ways an appraiser can adjust for time:

1. Extend the prior trend to the effective date of the appraisal, even if there are no supporting sales for going beyond that last sale date.
2. Don't extend past the last date that you feel that you have all sale information.

Consider than in many areas it is not possible to get the contract sale prices on pending and that it might be several weeks between the sale contract and the report of closing price. With either method, you risk being under or over true market value. If prices have been going up fast, there is a good chance for a turn around and you risk valuing over price if you assume the past trend will continue.

BTW, one reason I like relative quality scores is because we can look at any appraisers past record and see what percentage of his ratings come in at above 5.0 or below. If he is not biased, it should be about 50%.
 
Find a Real Estate Appraiser - Enter Zip Code

Copyright © 2000-, AppraisersForum.com, All Rights Reserved
AppraisersForum.com is proudly hosted by the folks at
AppraiserSites.com
Top

AdBlock Detected

We get it, advertisements are annoying!

Sure, ad-blocking software does a great job at blocking ads, but it also blocks useful features of our website. For the best site experience please disable your AdBlocker.

I've Disabled AdBlock
No Thanks