Bracketing the contract price

[andrew81]

The issue isn't whether it makes sense to bracket the contract price or not. The issue is whether the Client requested that you do so as part of the assignment request. If they did and you accepted the assignment, you do it.

I do agree most of the time, but not every time.

Unacceptable Conditions
Certain types of conditions are unacceptable in any assignment because performing an assignment under such conditions violates USPAP. Specifically, an assignment condition is unacceptable when it:
• precludes an appraiser’s impartiality, because such a condition destroys the objectivity and independence required for the development and communication of credible results;
• limits the scope of work to such a degree that the assignment results are not credible, given the intended use of the assignment; or
• limits the content of a report in a way that results in the report being misleading.

 

[Mike Ault]

I love appraising the worst REO in a little bitty town for a client that has a laundry list of bracketing expectations in their engagement letter. If they get indignant about my appraisal I get to tell underwriting to go purchase a home in that town, let a gang use it as a clubhouse for about six months, sell it, and then send me the information regarding the sale to use as a comparable. I will be happy to reappraise the property for them at that time and could possibly bracket value, contract price, condition, etc. for them at an additional fee. Otherwise they get to use the best comparables I am able to dig up. Only on very rare occasions have I found it necessary to leave the office to photograph extra comparables and it was not to bracket some price/value/feature for the clueless.

 

[Overimprovement]

I love appraising the worst REO in a little bitty town for a client that has a laundry list of bracketing expectations in their engagement letter. If they get indignant about my appraisal I get to tell underwriting to go purchase a home in that town, let a gang use it as a clubhouse for about six months, sell it, and then send me the information to use as a comparable. I will be happy to reappraise the property for them at that time and could possibly bracket value, contract price, condition, etc. for them for an additional fee. Otherwise they get to use the best comparables I am able to dig up. Only on very rare occasions have I found it necessary to leave the office to photograph extra comparables and it is not to bracket some price/value/feature for the clueless.

I did an REO report for a big bank once-very small town, C5 condition, no comps, etc. To top it off, it was adjacent to an active RR track, and across the street from a church.

Thought the underwriter was literally going to die from stress. Not me, I don't let em bother me anymore!

 

[Andee]

The issue is whether the Client requested that you do so as part of the assignment request. If they did and you accepted the assignment, you do it.

So what happens if it wasn't part of the original assignment and the UW just decides they want a property to bracket the contract price? I know I have had plenty of properties lately that come back above contract because of this ridiculous market increase and you have the comps to prove there was an increase with nothing lower available. I don't think it should be a matter of finding something just because the UW decides it needs to be that way. We don't know the full motive for why the buyer and seller agreed upon that price, but they did. I just completed one last week, house is being sold, was never on MLS, it was in some rough shape from an owner that was much older and passed away, kids don't live in the state, the neighbor is buying the house, other houses similar were selling for more than the contract price, not even the adjustments could bring down the value any because I had solid comparables that were similar and all sold for more with their unadjusted prices. Sometimes it is what it is and it because a frivolous request that was never part of the original assignment to begin with.

 

[Carnivore]

I submitted a USDA report, opined value is bracketed both within unadjusted sale prices and adjusted values. The supported value is higher than the contract price. The underwriter is demanding I bracket the contract price... has anyone ever heard of this?

So if we go back to your original post. You use the title "Underwriter". Who's Underwriter? I assume the Client. OK, first; They can not Demand anything if its contrary to USDA 4150.2. If it's in your engagement letter this likely is an Unacceptable Assignment Condition. OR if they are citing 4150.2 they mistakenly or deliberately ignoring the the attached pix of my post.

The way to respond to them is to cite the actual reference material of USDA 4150.2 I have attached a jpeg of that page in this post. Sputman was not precise in one of his responses. Essentially if they have an unacceptable assignment condition they either have to change the Engagement Letter or YOU have to turn the assignment down. FTR, I have one Mortgage Banker that has stated certain requirements in their engagement letter. I pushed back and spoke with the UW about it....after a lengthy discussion the UW finally relented and modified the engagement letter. The Underwriter did not just roll over and do it. No the UW still uses the word "Must" but goes on to say; 'If you can't then Explain."

Below is straight out of 4150.2. No where in there does it say ANYTHING about Contract Price ....you might assume thats what they are talking about.

What I suggest to the OP is to explain in your report AND insert this below within the addendum. NOTE: FHA 4001. Says something very similar.

 

[Carnivore]

Just for the Record.. Here is what FHA says about comparable selection and Bracketing etc

 

[J Grant]

Just for the Record.. Here is what FHA says about comparable selection and Bracketing etcView attachment 56880

The above cites a desired or estimated value - which as we know is different than a CS price. The CS price is a fact. and it only becomes a "desired value" if we make it so. Because prices are facts, imo they can be relevant to analysis- because there is a relationship between price and value , however that is different than targeting a desired value to choose comps around.. Note in post 45 the handbook verbiage does not say "contract price " yet references bracketing inferior and superior properties by dwelling size and sale price , when possible .

The OP wrote his post in a confusing manner, and we are limited without seeing the appraisal/knowing the market or what alternate sales were available - If an UW or reviewer asks us to add a sale or make another change that can produce misleading results we need to refuse. But if they ask for further information to support our OMV, such as an additional sale with a price above the CS price, it is up to us whether to try and find it

I personally would have tried to bracket the CS price without being asked , because doing so either further supports my value opinion, or it might change my opinion. FHA and fannie guidelines are minimum and an appraiser can exceed the minimum.

I try to bracket a subject CS price ( if possible ), since it addresses the question, is the high or highest price for this property esp if can not find a match - A )Does the high price represent an over improvement ? B) Does the high price represent a supported value because of the subject qualities/ appreciation? C) Does it represent an over payment, even in an appreciating market.?

As an appraiser, we are looking for B , and we are supposed to understand /analyze when it is A or C.

 

[Dublin ohio]

I personally would have tried to bracket the CS price without being asked , because doing so either further supports my value opinion, or it might change my opinion. FHA and fannie guidelines are minimum and an appraiser can always exceed the minimum.

If you had been paying attention. The OP stated that there were no "comparable" sales that would bracket the contract price. Now I suppose you would just throw in a sale that brackets the contract price whether it be comparable or not. I am not sure if rural appraising is something you do regularly. If you did. You would realize that it is easier said than done

 

[mp2277]

If find the way you describe it above confusing..

If the highest unadjusted sale price of the comps is lower than your market value opinion, it is common for an UW or reviewer to ask for a higher priced sale to bracket because without it, you have opined a OMV higher than any sale price of any of the comps. The person asking for it may have explained it poorly ?

There is a mention in fannie guidebook ( don't ask me to find it ) where they say sometimes a less comparable property is used because it is an indicator of value. If here is truly no other higher sale found, then there is none. But if some are found, then what kind of properties are they ? Even if a higher price sale is less similar than the comps you used, it imparts information. If the less similar but higher or same price sale is superior in size or acreage etc, is it possible the buyer is over paying for subject when they can get a better property for the same or similar price ?

I agree, you are very confused and it has nothing to do with how I stated it. Actually READ the OP, the comments and my replies and you will find yourself less confused.

 

[mp2277]

The above cites a desired or estimated value - which as we know is different than a CS price. The CS price is a fact. and it only becomes a "desired value" if we make it so. Because prices are facts, imo they can be relevant to analysis- because there is a relationship between price and value , however that is different than targeting a desired value to choose comps around.. Note in post 45 the handbook verbiage does not say "contract price " yet references bracketing inferior and superior properties by dwelling size and sale price , when possible .

The OP wrote his post in a confusing manner, and we are limited without seeing the appraisal/knowing the market or what alternate sales were available - If an UW or reviewer asks us to add a sale or make another change that can produce misleading results we need to refuse. But if they ask for further information to support our OMV, such as an additional sale with a price above the CS price, it is up to us whether to try and find it

I personally would have tried to bracket the CS price without being asked , because doing so either further supports my value opinion, or it might change my opinion. FHA and fannie guidelines are minimum and an appraiser can exceed the minimum.

I try to bracket a subject CS price ( if possible ), since it addresses the question, is the high or highest price for this property esp if can not find a match - A )Does the high price represent an over improvement ? B) Does the high price represent a supported value because of the subject qualities/ appreciation? C) Does it represent an over payment, even in an appreciating market.?

As an appraiser, we are looking for B , and we are supposed to understand /analyze when it is A or C.

R E A D my OP and comments. Why are you assuming they wanted a comp priced higher?