Appraised Value Below Contract Price

[mark hurlock]

Mark, I agree. Good thing you asked, are we just supposed to take their word for it? Yes, the purpose of contract analysis is to review concessions, terms, personal property inclusion etc, and how that might impact price.

My pst intended to address the fact that lenders are requiring apprairers to comment on relation between SC price and MVO ONLY when they differ (esp when a MVO is less). Since this requirement is becoming more widespread, and tends to put appraisers on the defensive, then we'd be better off having it a requirement on all purchase appraisals, inlcuding when MVO and SC price meet. The explanation of that would be quite amusing at times. It would make appraisers have to be as thorough and on the defensive about explaining how their MVO just happens to match a SC price.

If examining the relation between a SC price and a MVO is important, it should be important on all reports. Cert 18 on the URAR forms specifically prohibits an appraiser from accepting compensation (or anticipation of future work/compensation) , or that condition an appraisal on arriving at a value in a certain range, or one that favors a direction of value or outcome, including approval of a loan. Yet here we have clients only asking for additional explanation when their cause is not furthered by the MVO. Hmm...any connection there, per chance?

That is why appraisers need to keep records of when a client drops them, or abrublty slows work volume, after an appraiser doesn't make SC price on a couple of deals. (in case regulators or attys become engaged, and can see a lender/AMC pattern over a period of time). A client rewarding appraisers by giving work only to thow who routinely make value proves the incentive regarding anticipation of future compensation in cert 18.

I was recently asked to bracket the contract price in the sales comparison grid. I never had that request before.

I simply indicated that price shall not be a criteria for comparable sale selection.

I have not received any work from them since.

 

[J Grant]

Document the fact that you recieved no work after that. Maybe after awhile, if enough appraisers show the same pattern from certain clients...

(though I wonder if in this case the request for SC price bracketed was to prevent Skippy from using comps that had no support for SC price?) An odd request.

 

[Calvin the Airedale]

Would you mind posting a link or the actual wording for your reference.

As you know these documents are hundreds even thousands of pages long and for anyone to go looking for a particular reference is not practical.

Once you have done so, I will offer my opinion. Thanks.

From FNMA Guidelines:
Guidance for Lenders and Appraisers April 2009
Chapter 2 – Preparing and Reviewing the Appraisal Report..........................................................................7
Contract Section.........................................................................................................................................10
Contract Section
The appraiser must analyze and report on: any current contract for sale; the owner of public record; financing data and sales concessions.


From CFR, whereas it was once written specifically to require contract analysis, it now defaults to that which is required by USPAP as follows:

e-CFR Data is current as of September 20, 2012​

Title 12: Banks and Banking
Browse Previous | Browse Next
PART 34—REAL ESTATE LENDING AND APPRAISALS

§ 34.44 Minimum appraisal standards.
top
For federally related transactions, all appraisals shall, at a minimum:
(a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005, unless principles of safe and sound banking require compliance with stricter standards;

From USPAP:
Standards Rule 1-5
605 When the value opinion to be developed is market value, an appraiser must, if such information is
606 available to the appraiser in the normal course of business:14
607 (a) analyze all agreements of sale, options, and listings of the subject property current as of the
608 effective date of the appraisal; and
609 (b) analyze all sales of the subject property that occurred within the three (3) years prior to the
610 effective date of the appraisal.15

 

[J Grant]

Calvin, you listed the USPAP reg requiring an appraiser to analyze an agreement of sale, (which we are aware of)

However, this does not require the appraiser to analyze the contract price itself,
(though an appraiser is free to do so)

Most importantly, it does not require, or even imply that an appraiser should address any relation, or variance between CS price and MVO, which you specifically said it did (since you stated that this can only take place toward the end of the report, after the MVO has been developed)

 

[Calvin the Airedale]

Calvin, some of your post imo is your viepoint of the "rules", and not what is actually required or asked of the appraiser.

The appraiser is asked to analyize the SC in the first section for a reason. Analyize the contract refers to arms length or not, concessions or special terms and impact on price, inclusions of personal property. I don't recall any advisory opinions or guidelines asking an appraiser to analize a contract price.

If the client etc, wants us to analyize the price , they should state that in the engagement letter. But they don't. They only ask it WHEN the SC price and MV opinion differ. To head off this request, some appraisers are now being proactive and adding a statement before turning the report in.

Here is my take,since things have gotten to the point they are.

On lender purcahse appraisals, require a statement from the appraiser addressing the relationship between SC price and MVO on ALL reports, including when the SC price and MVO match.

That would level the playing field. Right now, it is asked only when MVO is below a SC price, putting appraisers into the position of defending their MVO. If appraisers need to defend, or elaborate on how a MVO relates to a SC price, then they should do so on all purchase appraisals, including when the MVO and SC price are the same.

That, in fact, would be excellent, because it would reveal the flimsy reasoning and lack of support, outside the SC itself, for a number of times when MVO matches a SC price. For example, the three best comps out of four point to the lower range of value, there are long DOM and over supply of inventory, yet the high SC price is met, and only suported by a high price, outlier fourth comp. Require the appraiser to explain that, please!

As between you and I, we should let the reader decide whose opinion on this topic carries more credibility: one of us was a CA for a large institution that sold most of its loan product to the GSEs and was regulated by annual examination as to appraisal content and conformity to CFR regulations by the OTS: and one of us was not.

PS. For goodness sake, get a spell checker already!

 

[Calvin the Airedale]

Calvin, you listed the USPAP reg requiring an appraiser to analyze an agreement of sale, (which we are aware of)

However, this does not require the appraiser to analyze the contract price itself,
(though an appraiser is free to do so)

Most importantly, it does not require, or even imply that an appraiser should address any relation, or variance between CS price and MVO, which you specifically said it did (since you stated that this can only take place toward the end of the report, after the MVO has been developed)

Only an idiot would "analyze" a sale agreement and not come to a conclusion as to the reasonableness of the price. Especially when contained on the next page is his/her own estimate of market value.

In fact, and I know this from experience, the GSEs and regulators are looking for some statement of reasonableness, some opinion on your part as to whether the sale price is high, low or otherwise.

 

[J Grant]

People can decide whose opinion on this topic they find more credible.

The lack of crediblity on what you stated though, is that USPAP and the GSE's mandates that an appraiser analyze the SC price in relation to the market value opinion. That is not stated in the USPAP quote you posted and you have no GSE or other published source on it.

(I will get a spell checker, I hate to dowload it as have had computer virus issue in past with it)

 

[Calvin the Airedale]

People can decide whose opinion on this topic they find more credible.

The lack of credibility on what you stated though, is that USPAP and the GSE's mandates that an appraiser analyze the SC price in relation to the market value opinion. That is not stated in the USPAP quote you posted and you have no GSE or other published source on it.

(I will get a spell checker, I hate to download it as have had computer virus issue in past with it)

We agree that an obligation exists for the appraiser to analyze the sale contract. No?

What then, pray tell, would your basis be for such an analysis? Criminy, you're the appraiser. The whole point of your engagement is to opine a MV.

If they just wanted an uninformed opinion, they'd have the loan processor fulfill the obligation.

And how does anybody know if the contract price is reasonable, too high or too low? Duh, by comparing it to your value estimate.

:Eyecrazy:

 

[Calvin the Airedale]

Apparently, it is the government's and GSE's obligation to parse every jot and tittle of regulation so as to so inform even the idiots who wish to ply their trade in this profession.

 

[J Grant]

Only an idiot would "analyze" a sale agreement and not come to a conclusion as to the reasonableness of the price. Especially when contained on the next page is his/her own estimate of market value.

Again, you reference a comparison between SC price and the MVO, and there is no mandate, requirement, or guideline to do so. (and you are not able to provide one).

The SC is analyed to see if concessions, cash buy downs, personal property, or other terms impact price. An appraiser can comment on SC price if they see a relevance, particularly as it is impacted by terms of contract, however, that is not a mandate to comment on the SC price as it relates to the MVO.

In fact, and I know this from experience, the GSEs and regulators are looking for some statement of reasonableness, some opinion on your part as to whether the sale price is high, low or otherwise.

I share the same experience, that (some ) clients are asking for a statment from the appraiser to address when a SC price varies from the MVO. This is an expanded SOW and a client request, it has no other authority behind it.

Clients have a right to expand the SOW and ask for an explanation about SC price and MVO, which is what they are doing. However, a requirement for such is not in USPAP or any TAF guideline or APB advisory opinion .

This is an issue that mertis appraisers writing to the Appraisal Practices Board and TAF on.

Since the instutions you reference had to be bailed out and failed and were the architects of the sleaziest loan programs in history, the request coming from them is not exactly seen as trustworthy. If regulators want this kind of statement, which I see no evidence of, then they need to have it an accross the board statement in all purchase appraisals. Right now it is selectively applied only when SC price and MVO don't match, so how is that of interest to a regulator? Regulators, in fact, should be more concerend when the SC price and MVO magically match up, that needs explanation more than the other.