Appraised Value Below Contract Price

[residentialguy]

So you say you are a litigator?

If you insist on insulting posters, get a new insult

 

[Calvin the Airedale]

Really? Explain to me where a MVO that was not developed yet appears on a sales contract.

Since it is not in fact on a contract, how can an appraiser inlcude a MVO as part of a SC contract analysis? The SC analysis is asked for in the BEGINNING of a report, BEFORE the MVO is opined. There is a reason for that.

An appraiser can reference a SC price in the analysis, as it pertains to motivation, or DOM, or conecessions (known facts that existed at SC date)

But, to backdate an unknown MVO into a SC analysis is another matter entirely.

When a client asks for an explanation about why MVO diverges from a SC price, they are no longer concerned with SC analysis, they are asking a new question, such as how the comps or data in report support a MVO and why it differs from a price.

H&BU is also asked for prior to any of the valuations but it is impossible to answer without first knowing the value.

Same thing with contract analysis, which is why I lamented its placement in my opening post. Those who handle it in the reconciliation are being prudent and cautious. I cover it in both places.

 

[CANative]

What about where a simple sale between unrelated parties has $200,000 with a simple 8 page contract with nothing unusual and your opinion based on the market is $190,000?

What is the explanation? What further analysis will reveal the discrepancy?

 

[J Grant]

It's the appraiser's obligation to comment on the reasonableness of the sale price in every contract analysis, whether the price differs from value or not, or at least it's been explained to me that way by folks who had to the power to bounce me out of my career by virtue of their authority to regulate.

Really ? Once again, this is your opinion. Nobody, including you, found any reference or advisory opinion saying it is the appraiser's obligation to comment on reasonablness of the SC price.

Lenders are concerned with several things: is the sale arm's length; are its terms and conditions (the most important of which are price) reasonable. Does the contract make sense according to the definition of value used to underwrite the collateral?

The last part, does the contract make sense according to the def of value, appears to be questionable. Before that the list was realistic. Whether or not a SC makes sense is up to a RE atty, not an appraiser.

Every so often on AF, a thread (like this one) raises the issue: the lender asked me to explain why the value is different from the contract price. And then the whining starts: scope creep; how dare they attempt to influence us; why don't they read the report; et cetera, etc.

The lender is merely asking for a more detailed analysis of the sale agreement. If your value is higher or lower (let's assume by a lot) than the contract what other basis do you have for analyzing the contract, to comment on its reasonableness? If your MV are good enough to underwrite the loan, don't you think they're good enough to draw conclusions about the sale contract?

Why is the lender not asking for a more detailed analysis of the sale agreement when the MVO matches it exactly? It doesn't occur to them to ask how a buyer and seller manage to arrive at the exact same number weeks prior?

Everyone in this business already knows that reports with values much different than contract prices get much closer scrutiny. Somehow so many are blindsided by the client's request to give this more explanation and narrative. Criminy! Some of you must leave a trail of bread crumbs when you leave in the morning just to be able to find your way home.

Well that's the problem, isn't it. The system is backwards, it's the reports where values and SC prices match that need the closer scrutiny.

Weren't all the reports with matching SC prices and MVO's the ones in buyback lawsuits? Uh, yeah...so, they do get closer scrutiny, only at a later date, and after costing lots of lost $ .

The reports where SC price and MVO match need the most scrutiny of all. You know, all those happy appraisals where the SC value and MVO matched that are now the subject of lawsuits...

In fact, some of these reports are getting closer scrutiny a few months out, when the lender sells the loan.

 

[Calvin the Airedale]

What about where a simple sale between unrelated parties has $200,000 with a simple 8 page contract with nothing unusual and your opinion based on the market is $190,000?

What is the explanation? What further analysis will reveal the discrepancy?

Example of contract analysis:

"I read a copy of the sale agreement provided by the client. It is written at $200,000 for the " as is" condition and contains no seller finance or other concessions. The circumstances and motivations of the parties are unknown. The sale appears arm's length but based on the valuation reported herein, the sale price is too high. The contract price is unsupported by an analysis of the best available comparisons."

 

[mark hurlock]

If you have a neighborhood where everything is selling for $250,000 and there is one sale for $200,000 you don't "analyze" the price, i.e. do some research? Find out why?

The sales contract and the meeting of the minds is a piece of market action and it should be looked at including the price. If you opine to a significantly different number than you would owe it to the client to explain the discrepancy. That is just common appraisal practice.

You are analyzing the conditions of the sale and any potential effect on price, not the price itself.

You are required to do so no matter what the sale price is.

Seriously???? you only investigate the unusual prices?

You are already in trouble.

 

[residentialguy]

Maybe some of you need to read FNMA

Selling Guide: Fannie Mae Single Family​

Published August 21, 2012

"The lender must provide the appraiser with all appropriate financing data and sales concessions

for the subject property that will be, or have been, granted by anyone associated with the
transaction. In addition, the lender must provide the appraiser with a copy of the complete,
ratified sales contract and all addenda for the property that is to be appraised, therefore ensuring
that the appraiser has been given the opportunity to consider the financing and sales concessions​

in the transaction and their effect on value."



Oh dear....did they just say they wanted to know about the subject's contract and it's effect on market value?

 

[J Grant]

Sorry, Calvin, your analysis is not much different than mine as far as level of detail, and you atually provide nothing of value...not to single you out, but most appraiser's analysis of contracts are pretty much like yours...talking about concessions or the like, you say the circumstances are motivations are unknown, which is truthful, but you aren't adding any additional facts or level of knowledge .

The MVO is derived using a HYPOTHETICAL PRESUMED SALE per MV definition, it does not relate to the actual SC and sale price of subject.

How would more, lengthy analysis of the subject SC change the MV definition presumed hypothetical sale?

The hypothetical MV sale is what we use to derive MV, so the actual terms of sale for subject could be totally peculiar, and it should not affect the MVO one bit.

 

[mark hurlock]

Example of contract analysis:

The contract price is unsupported by an analysis of the best available comparisons."

Seriously, I already knew that from reading and comprehending the report. Exactly what did you explain to me that I did not comprehend from the rest of the report?

 

[Michigan CG]

Seriously???? you only investigate the unusual prices?

You are already in trouble.

And where did I say that?