Appraised Value Below Contract Price

[smackodu]

Part of your scope of work (for FNMA/most lending) is to analyze any current listings and the contracts. Providing a value opinion indicating you disagree with those, without the required analysis will likely always elicit requests for more explanation.

If your thinking this is somehow the responsibility of the listing broker to help you support the contract price; you might consider a classroom based ethics update. Your headed for trouble.

Bob in CO

I don't need an ethics class Bob. And simply put Bob my appraisal is full of analysis. The mere fact my opinion of value is below the contract price will always elicit requests for more explanation REGARDLESS of how much explanation is contained in the report.

 

[CANative]

You are not mean and I do not try to find properties to support the sales price. I took an Extenz last night so it is not the self-confidence problem...My point is that I would expect an agent who is getting both sides of $800,000 transaction to be proactive in making sure the house appraised at or above the contract price. My appraisal is not based on the contract price. This will just add one more to the stack of appraisals that I have done this month where the value came in below the contract price.....I always enjoy the "Told you so moment" when I am requested by the lender to change the sales price to the appraised value.

The only purpose of a real estate agent is to meet me at the house, unlock the door and hand me the contract. I'll lock the doors when I leave thank you very much.

The agent KNEW it wasn't going to happen. That's why he tried to sell you on the house.

 

[J Grant]

Forget relying on a listing agent to support why a house should appraise at or above a SC price. Some of them expect an appraiser to do that and will whine and throw tantrums when the SC price is not met.That does not mean they have legit support for it appraising at SC price, they think if a buyer agreed to pay it, it should apparise.

Half the time their "support " are ridiculous comps that have nothing to do with the subject , but unfortunately, buyers can and do base buying decisions on ridiculous comps a realtor selects.

That's why I write, when explaining why a SC price and an appraised value difference, that the parties who negotiate a SC price do so according to individual motivations and not according to the criteria an appraiser uses to develop a market value opinion.

(Truth is, I have no idea how they arrived at their SC price, since I wasn't there and they didnt' invite me to negotiate it.)

Having sold RE once upon a time (for five years), the way parties negotiate SC prices has little to do with the home value and a lot to do with ego, need, greed, fear, financial ability, what the buyer qualified for in a loan, what cash is on hand etc.

First of all, the bid is based on the asking price, and who set the asking price? The genius listing agent. Hmm, house has been on the market a year and reduced three times, the agent really knows the market (cough). Anyway, the bid starts off an asking price, which may or may not be a reasonable, and it goes back and forth from there.

The back and forth often favors which party is more agressive, wants the deal more, has the better agent...till they agree on a price.

Factors that impact price include contingencies, closing date, how much $ down, what kind of repairs, if any are made, etc. And the intangible factors, such as agent skill, stubborness or desperation of either of the parties, etc.

Sometimes the negotiations get ugly, or personal and petty . That is why the best agents have great people skills, not necessarily great valuaton skills, but great people skills.

Successfully negotiating a contract between two parties who frankly may not like each other is difficult, so I can understand why agents get uspet when a deal goes south.

But the agents don't realize that since the price negotiation ofen has little to do with value and a lot to do with placating the parties or compensating for a financial issue, the SC price may differ from the MVO .

 

[hastalavista]

Having sold RE once upon a time (for five years), the way parties negotiate SC prices has little to do with the home value and a lot to do with ego, need, greed, fear, financial ability, what the buyer qualified for in a loan, what cash is on hand etc.

My bold.

This is an amazing statement.
Buyers and sellers negotiate a price to purchase a home and it has little to do with the value.

Is this what you truly believe? Or, perhaps you'd rephrase it?

 

[J Grant]

I'll elaborate more in the AM have to sign off computer but will explain more in the morning

 

[Terrel L. Shields]

We're so sorry Mr. Realtor
But we haven't found a bloody thing all day
We're so sorry Mr. Realtor
But the comps ain’t there and your sale is going away

sung to the tune of Admiral Halsey / Uncle Albert and apologies to P. McCartney

 

[Delta85]

When I'm working on a purchase I always give the listing realtor the opportunity to present their best 3-4 comps they believe support their contract price and let them know I promise to review them but can not promise to use them. If they offer them I'll review them and either use them if they are appropriate or discard them but either way I indicate in the report that these particular sales were presented by the realtor and explain why they either were used or were not. If they opt not to offer any data I also indicate this in the report as well.

By doing this I am basically giving the realtor enough rope to hang themselves.

 

[Tim Hicks (Texas)]

My bold.

This is an amazing statement.
Buyers and sellers negotiate a price to purchase a home and it has little to do with the value.

Is this what you truly believe? Or, perhaps you'd rephrase it?

Denis,

I actually believe that many buyers believe what is told to them by the selling and listing agents and really have no idea if the price is fair or not. They know the price they are told they can afford and they really are at the mercy of whom they chose to represent them.

Think about it. How many borrowers on re-fi's have no idea or refuse to believe the market has not gone up for them in the past five years? Oh, they have heard of market declines, but that did not effect them. Many want to talk price per foot and they think is it is a constant price no matter the size or location of the home. Constantly, I have home home owners thinking their 4000 sf home should be worth the same price per foot at the 2500 sf home down the street. Come to think of it, many agents think the same way. How many times when you are appraising a 30 year old home do you have a home owner telling you how much the new homes around the corner are selling for? The word "informed" is a key element in the definition of market value.

 

[smackodu]

Denis, I actually believe that many buyers believe what is told to them by the selling and listing agents and really have no idea if the price is fair or not. They know the price they are told they can afford and they really are at the mercy of whom they chose to represent them.

No need to to think about it. I have seen far too many times where a buyer will be interested in a property and they ask the realtor what the property is listed for and what they believe the seller will take. Then they make an offer and end up negotiating the contract price. Most likely none of the parties involved have done any research as to what the property is worth and what it will appraise for. When the appraiser does not hit the sales price it is time for everyone to blame the appraiser.

 

[Delta85]

I also agree that few buyers and homeowners in general know what the current market value is for the home in question. They rely on realtors to guide them and if they have done research have not gathered the right kinds of data in order to accurately gauge the market. This is why the appraisers job is so important and why we often are the bad guy when things go haywire on their deals.

That's not to say some buyers and homeowners are not informed. There are some who have done enough homework to know where the ballpark is but in my experience this is a rarity.

Realtors in many cases are simply not doing their jobs. They either lack the ability to fairly price a home, are purposely over or under pricing a home, or are allowing the homeowner to dictate what the price has to be. Some realtors are so scared of losing a client that they fail to break the bad news to them that their home is not worth what they think it is.