Builder raises prices, no comps, no resales

[J Grant]

One of current allegations in our business is that appraisers are concluding to less than the contract price more often for minority borrowers and locations than for non-minority borrowers and locations.

It is not our role as appraisers to act as an arbitrary chokepoint for the prevailing market trends in pricing, whether that trend is for increase or decrease.

Why is doing out job, opining at MV , equated to acting as an "arbitrary chokepoint ?"

Dragging the minority thing into this discussion has no bearing.... if you feel appraisers should not be a "chokepoint" for prices, then neither should they be an accelerant for prices.

 

[TMG]

I just did a refi in a new development. Buyer hadn't even moved in yet and was already getting a lower rate. Prices are going UP. Subject was in phase 1 at $595k, luckily I had some closed in phase 2 at $615k. The last phase (phase 4) is being framed right now, and many are already pending at $725k with no dev sales to support that and no resales.

i wont be accepting any of those orders.

 

[J Grant]

One of current allegations in our business is that appraisers are concluding to less than the contract price more often for minority borrowers and locations than for non-minority borrowers and locations.

It is not our role as appraisers to act as an arbitrary chokepoint for the prevailing market trends in pricing, whether that trend is for increase or decrease.

Is that the allegation? I do not recall it specifically about contract price -more a broad allegation of appraisers undervaluing minority owned or location - the appraisal case that as a highlight was a refinance where two appraisers came in at vastly different values.

 

[J Grant]

I don't understand you when you talk about price vs value, but I don't think I need to understand you. Are there examples where this can effect my work?

If you want to make a point like: Don't assume the property has a market value of $100k if it is pending at $100k.... that is a more straight forward way of saying it don't you think? But let's not beat around the bush. There is no better comparable sale than a pending sale of your subject property. You need a valid reason to make a conclusion like "the next buyer will not pay the same price as this buyer is"

You talk like we are discussing theoretical physics, but you are just warning appraisers to be organic about coming to a value and not appraising to a predetermined result?

I spirit of debate I am responding - I agree with your post btw but wanted to refine a few points... ( Appraisal 101 is price does not always equal value so need to rehash that )

There is no better comparable sale than a pending sale of your subject property.

True, as far as the price the one buyer is willing to pay according to that specific negotiation. But we still have to find out how that price measures up with the appraisal development for a value equivalence.

You need a valid reason to make a conclusion like "the next buyer will not pay the same price as this buyer is"

I never make that conclusion. I refuse to guess what a next buyer will pay or will not pay. Unless it is states as a purpose, the appraisal does not ask us to conclude that the next buyer (will or will not pay ) the same price as this buyer-

 

[The Warrior Monk]

I do not place so much weight on pendings that I would use them to increase my value opinion above sold sales. At least I have never had to do that. I also would not use pendings to establish a market condition adjustment. To me pendings are just listings. Similar to an agent telling me that they have additional offers above contract price. Pendings still have to settle and just because the contract price is $x does not mean it will settle for that. Undue stimuli results in crazed buyers willing to pay anything regardless of past recent sales. This is speculation.

For me, it depends on the circumstances.

For example, an associate of mine was working on a project involving a new condominium complex. The developer knew about the financing issues associated with new projects, and handed my associate an extremely detailed sheet that including the pending prices and the buyers. The problem was that the buyers were all different corporations, with hidden ownership (i.e., mailing address was attorney or other agent). While that is not uncommon in this market area, it would exceedingly unlikely that 100% of the buyers would be doing this. So we mentioned the pending sales but placed no weight on them.

On the other hand, if the assignment comes through a reputable lender (buyer already qualified), the 10% deposit has been made, the listing history of the property can be readily verified, the contract can be verified through all parties, the closing date is known and can be verified, etc. that is a different story. I'm also personally dealing with a lot of contracts with no mortgage contingency: e.g., the property will be purchased cash if the mortgage is not obtained before closing. While one pending might not matter, if all of them from all areas from completely unrelated parties are like that, then the appraiser would have to consider them.

I also agree with George's previously comments.

 

[George Hatch]

Why is doing out job, opining at MV , equated to acting as an "arbitrary chokepoint ?"

Dragging the minority thing into this discussion has no bearing.... if you feel appraisers should not be a "chokepoint" for prices, then neither should they be an accelerant for prices.

I threw the arbitrary chokepoint crack in there just for you, because you have always taken the attitude that it's our job to stabilize the market and prevent property owners as a whole from losing equity (when the market is trending down) or preventing runaway inflation (when the market is trending up).

That's not our job.

 

[Alsie35]

I threw the arbitrary chokepoint crack in there just for you, because you have always taken the attitude that it's our job to stabilize the market and prevent property owners as a whole from losing equity (when the market is trending down) or preventing runaway inflation (when the market is trending up).

You never learn. An appraiser calling it $300k doesn't make it so if the buyers and sellers who are actually pulling the trigger think it's actually $330k. As a group the market is never wrong whether the appraisers think these trends to be wise or foolish.

EXACTLY. I remember appraising in 2006, shaking my head looking at these poor buyers who were paying a King's ransom for a shack, KNOWING that "it ain't gonna last ..." But having that fatherly talk (and relating the two prior boom/crash cycles I had witnessed in my working life) was NOT part of the job description. Appraising their home WAS. And the market clearly (as in sales just days old) said it WAS worth that much - at that point in time.

What I was reacting to was my life experience that informed me that - it wasn't gonna last, 'cause it had gone too far, too fast. But that is not part of the appraisal practice. That is what you try to tell your kids about so they don't make a mistake. The market tells you the market value. What you think about that is your own business. Its not a part of your job.

 

[J Grant]

I threw the arbitrary chokepoint crack in there just for you, because you have always taken the attitude that it's our job to stabilize the market and prevent property owners as a whole from losing equity (when the market is trending down) or preventing runaway inflation (when the market is trending up).

That's not our job.

Point to one single post I made, link it or paste from one, where I said that it is our job to stabilize the market etc. I NEVER SAID IT, in fact But since you claimed that, please find it or retract your statement.

What I did say, is that if appraisers do their job properly ( opine MV ), it does tend to have a mitigating influence on rapid accelerations or declines. VS when appraisers take it upon themselves to number hit

 

[George Hatch]

It's been years and I'm not going to go hunting for the discussions we had 15 years ago about using REOs as comps when that's what prevails. You were wrong about that then and you are wrong now. Among other things in the here and now you've been wrong about.

Suffice it to say we aren't supposed to be protecting our lenders from their decision making or protecting the borrowers from their decision making. Our role is to provide transparency and information so these parties can - if they so desire - make more informed choices. We're responsible for what we do, not what they do.

 

[J Grant]

GH - ". An appraiser calling it $300k doesn't make it so if the buyers and sellers who are actually pulling the trigger think it's actually $330k.
An appraiser does not "call it" 300k, the appraiser can give their OMV to the lender of 300k. If buyers and sellers pulling the trigger think its worth 330k, they can pay the overage in cash if appraisal MVO is 300k. If most properties are trading for 330k with at least a short term history of it, chances are the MVO would be the 330k

As a group the market is never wrong whether the appraisers think these trends to be wise or foolish.

Really? The market as a group can be very wrong, look at all the defaults and losses in the bubble and in other market cycles.