Appraised Value Below Contract Price

[J Grant]

Calvin is entirely correct. The OP is complaining that thelender is asking him to do what he should have already done. I don't care if you wrote a novel, if you are being asked for additional info regarding the sale analysis, you didn't properly analyze the sale. I see this all the time in many parts of appraisals that I review. Simply stating a contract was written on x date for x amount is NOT analysis.

Really? Then appraisers should have to explain the SC price at all times, not just when it differs from MVO. You don't seem to think it is necessary, unless the SC price is not met.

When the SC price is met, it needs even more explaining. If analyzing the contract now includes "analyzing " the price, in relation to a SC , (according to you and Calvin, at least) then it should be required on every purchase apprasial report. Right now, clients are expanding the SOW and asking for an explanation about SC price only when it differs from the MVO. Otherwise, they don't care. So, if they don't care when things go their way, where did the pressing need for SC price "analysis" go?

 

[J Grant]

Calvin is entirely correct. The OP is complaining that thelender is asking him to do what he should have already done. I don't care if you wrote a novel, if you are being asked for additional info regarding the sale analysis, you didn't properly analyze the sale. I see this all the time in many parts of appraisals that I review. Simply stating a contract was written on x date for x amount is NOT analysis.

A SC is not a sale, it's a pending contract of sale. That might be the first step in an analysis of it.

 

[mark hurlock]

Calvin is entirely correct. The OP is complaining that thelender is asking him to do what he should have already done. I don't care if you wrote a novel, if you are being asked for additional info regarding the sale analysis, you didn't properly analyze the sale. I see this all the time in many parts of appraisals that I review. Simply stating a contract was written on x date for x amount is NOT analysis.

Jason,

since you have spoken out in support of the above comments, I would also ask that you provide a link or the exact wording that you are interpreting.

Thanks.

 

[smackodu]

Calvin is entirely correct. The OP is complaining that thelender is asking him to do what he should have already done. I don't care if you wrote a novel, if you are being asked for additional info regarding the sale analysis, you didn't properly analyze the sale. I see this all the time in many parts of appraisals that I review. Simply stating a contract was written on x date for x amount is NOT analysis.

You can't be anymore wrong Jason. The contract is thoroughly analyzed by me. I also look for personal property included, rent backs, closing help, warranties and other items. All of this is conveyed to to the lender in the addendum. Simply stated, the lender goes back to the appraiser because the parties to the contract and the realtors are not happy the appraiser threw a monkey wrench in the transaction. If a realtor can't show up at appraisal inspection there is no way they want to spend time renegotiating the offer.

 

[J Grant]

Stating that part of the analysis of a SC is supposed to include price in relation to MV is baseless. People asked for links or an advisory opinion on this for good reason. If the GSE's or Fannie or USPAP required this, then it should be on all purchase appraisals, including when SC and MV match, not just when they don't match.

The fact is, it's an expansion to the SOW and an after the fact addition to a report at the request of the client. It came about likely in reaction to borrowers having the right to an appraisal, and then the Dodd Frank allowing a reconsideration of value. Clients are asking for it as a way to appease borrrowers or realtors, or as a way to put appraisers on the defensive when they don't come in at value (or a combination of both, hard to tell)

 

[J Grant]

Asking for an appraiser to comment on how, or why, a MVO and SC differs is one thing . It is a special request, and has nothing to do with contract analysis...because, have you ever read a sales contract that references YOUR specific market value opinion $ amount? I haven't ! (though some contracts have a contingency about appraised value, that is a clause, and not the same thing).

In fact, an appraiser claiming to be able to "analyze" a SC price would be misleading. Unless an appraiser was present in all aspects of the negotiation, and had access to both buyer and seller financials , and could interview the wife and husband or other parties who influenced the outcome, the fact is, the appraiser doesn't have a clue as to how, or why, these people arrived at a particular contract price.

A realtor might give you their version, such as "the buyer fell in love with the house", but that 's not an anlaysis, that's the realtor version, once again promoting their agenda of getting the deal done, which is their right to do so.

 

[mark hurlock]

Stating that part of the analysis of a SC is supposed to include price in relation to MV is baseless. People asked for links or an advisory opinion on this for good reason. If the GSE's or Fannie or USPAP required this, then it should be on all purchase appraisals, including when SC and MV match, not just when they don't match.

The fact is, it's an expansion to the SOW and an after the fact addition to a report at the request of the client. It came about likely in reaction to borrowers having the right to an appraisal, and then the Dodd Frank allowing a reconsideration of value. Clients are asking for it as a way to appease borrrowers or realtors, or as a way to put appraisers on the defensive when they don't come in at value (or a combination of both, hard to tell)

J,

I asked for documentation because FNMA Selling Guide Part VII Chapter 2, Lender disclosure of information establishes why the GSE wants the appraiser to be aware of the particular contract information.

An appraiser may very well determine that such a comment might be appropriate but I have not interpreted it as required or to be the purpose of contract analysis.

 

[J Grant]

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.

 

[23Degrees]

This always shut em up:

"It is recognized that the opinion of value differs from the noted contract price by less than X% however the convergence of the data was such that to raise the opinion of value due solely to the presence of a purchase contract would amount to the utilization of a predetermined value."

As for the purchase contract price relating to value - yes it certainly indicates consideration to value in most cases. And on top of that often also gives consideration to commissions, unrevealed concessions, and getting as much $$ as possible to all the interested parties involved. Anyone who did reviews during 2004-2009 in the area where I am located would have to have willfully ignored the obvious not to see that and be well aware of all of the "techniques" used by practitioners in the appraisal field to hit that number and keep the work coming in. Things have changed a bit it seems but probably not nearly enough.

 

[J Grant]

Great post, 23 Degrrees, and a good explanation as well~