Being Told The Contract Price Of A Subject

[Dallas Scott Wilke]

I've been thinking a lot about impartiality and how to best improve your chances of truly eliminating bias.

When we are given the contract price of a subject for a Purchase Appraisal, and then asked to bracket that price in our comparables, does that not make us inherently bias toward a specific opinion of value?

I much prefer when doing an appraisal without a preconceived notion of value. Even it it does make my job a little easier to know what price to look around. I would rather do a Market Analysis and see what similar properties have for $/sf and go off of that. I feel that is more unbiased.

Are there articles that discuss this? Do you guys have opinions on this? Does this actually violate USPAP by creating partiality?

 

[bnmappraisal]

When we are given the contract price of a subject for a Purchase Appraisal, and then asked to bracket that price in our comparables, does that not make us inherently bias toward a specific opinion of value?

Nope!

As long as you don't let the Contract Price guide you in your analysis

 

[Joe Flacco]

Forget about $ / SF.

 

[JTip]

You get a contract for $50k in a cookie neighborhood of $100k homes.

You read the contract and see it is between two brothers after mom passed a month ago......

The contract is essential on purchases.

 

[CindyR]

Even it it does make my job a little easier to know what price to look around.

We don't (or shouldn't) search by price.

 

[George Hatch]

I never use price as a search filter. The only thing I use contract price ( or any other indication of a desired result) for is as a signal for when to go on offense to prove what is clearly unreasonable. In those circumstances when that's the case.

 

[Overimprovement]

We don't (or shouldn't) search by price.

If we are going to search by price, simply to justify a purchase, an AVM can do that very well. We are not needed in that instance. If that is all we have to offer, we are in trouble!

If one needs a contract price to have some idea of a starting point for a search, they do not know their market at all...(unless some unique property).

We do not justify purchase prices, we provide market value. Maybe they are similar or identical. Maybe not...we are the professional hired to determine that.

 

[RSW]

That's why I think we should provide a value range and not an exact number. The lender can decide if they want to do the loan if the contract price falls within that range.

 

[Mike Kennedy]

You get a contract for $50k in a cookie neighborhood of $100k homes.

You read the contract and see it is between two brothers after mom passed a month ago......

The contract is essential on purchases.

Assuming the subject property is similar to, equivalent to other competitive properties (location, view, lot size/utility, style, age, quality, condition, and amenities....i.e. it too is a "cookie") which sold at $100. The market (other buyers of other directly competitive properties) has spoken.

Whether a subject is under contract or not is an underwriting issue - it is irrelevant to the Market Value appraisal.

B4-1.1-01: Definition of Market Value (04/15/2014) - Fannie Mae

https://www.fanniemae.com/content/guide/selling/b4/1.1/01.html
Apr 15, 2014 - Definition of Market Value. Market value is the most probable price that a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.

 

[Mike Kennedy]

Who the owner(s) are, the potential buyer(s) are, who the Lender is, who the real estate agents (if any) are and what the agreed upon price is are ............irrelevant.

The Principle of Substitution is the basis for the market data approach to appraisal. This principle says that the maximum value of a property usually is established by the cost of acquiring an equivalent substitute property that has the same use, design, and income.

The competitive market (other buyers and sellers of OTHER competitive properties - based on the principle of substitution) indicates current Market Value (whether for refi, home equity, rate change no cash out, bankruptcy, divorce, asset management etc.). Period.

Meanwhile it lives.............on and on...........