Contract? What contract?

[Michael Tipton]

FREQUENTLY ASKED QUESTIONS



121. PURCHASE CONTRACT IS NOT PROVIDED TO THE APPRAISER

Question:
I was recently engaged to conduct a market value appraisal of a one-to-four unit residential property. The intended use of this appraisal is to assist the client in analyzing the loan collateral associated with the property’s purchase. I requested a copy of the purchase contract from the client, but they refused to provide it although they acknowledged that a contract for purchase of the property in fee simple exists. They did, however, provide a sale price orally. Can I continue this assignment, without the purchase contract, and comply with USPAP?

Response:
Yes, you can complete the assignment in compliance with USPAP. However, you will need to ensure compliance with Standards Rule 1-5(a) in developing the appraisal, and with Standards Rule 2-2(a)(viii), (b)(viii), or (c)(viii), as applicable to the type of appraisal report determined most appropriate, given the intended users, in reporting the assignment results.


Standards Rule 1-5(a) states:



When the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business:



(a)
analyze all agreements of sale, options, or listings of the subject property current as of the effective date of the appraisal;


The Comment to Standards Rule 1-5 states:



See the Comments to Standards Rules 2-2(a)(viii), 2-2(b)(viii), and 2-2(c)(viii) for corresponding reporting requirements relating to the availability and relevance of information.


For example, the corresponding reporting requirements in Standards Rule 2-2(a)(viii), in the Comment, are, in part:



…If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required.


Complying with these Standards Rules ensures that the existence and unavailability of the purchase contract is appropriately disclosed, and intended users will not be misled as to how this situation was handled in the analysis and report.







TABLE OF CONTENTS



USPAP 2008–2009 Edition
©The Appraisal Foundation

 

[Mr Rex]

Contract? We don't need no stinkin contract. I do agree that you should tell the client that analysis of the contract after the fact is at least 1 Benjamin.

 

[ZZGAMAZZ]

Curt (Post# 5) is as always perfectly logical, and succinct to boot.

(He's obviously a very intelligent individual--to some extent because we usually agree on things...)

However, if a purchase agreement is the essence of a contractual relationship that needs to be established as the basis of the decision whether to collaterize the underlying real property interest, and if the embedded intended use of the 1004/05 applies only to a mortgage finance transaction, would the absence of the purchase agreement change the intended use to the extent that the popular form would not be applicable?

Usually I'm very straightforward but in this instance I'm just looking for trouble with very little else to do . . .

 

[Mr Rex]

Curt (Post# 5) is as always perfectly logical, and succinct to boot.

(He's obviously a very intelligent individual--to some extent because we usually agree on things...)

However, if a purchase agreement is the essence of a contractual relationship that needs to be established as the basis of the decision whether to collaterize the underlying real property interest, and if the embedded intended use of the 1004/05 applies only to a mortgage finance transaction, would the absence of the purchase agreement change the intended use to the extent that the popular form would not be applicable?

Usually I'm very straightforward but in this instance I'm just looking for trouble with very little else to do . . .

Since Fannie hasn't published instructions for the 05 form and FHA has, I often use FHA as a "guideline":

Section 2 – Contract


This section must be completed when the appraisal assignment involves a purchase transaction, otherwise enter “N/A” for not applicable. FHA requires that the appraiser be provided with a complete copy of the ratified sales contract, including all addenda, for the subject property.

It provides the agreed-on contract price (accepted offer), date of sale, and all financial terms implicit in the offer. If unable to obtain this information, the appraiser is to state what efforts were made to obtain it.

Field
Protocol
Analyze Contract for Sale
· Explain the results of the analysis (terms and conditions) of the contract of sale or why the analysis was not performed.
· The analysis may include a reference to the number of pages contained in the contract for sale provided.
Contract Price $
· Enter the final agreed upon contract price.
Date of Contract
· Enter the date of the contract. This is the date when all parties have agreed to the terms of, and signed the contract.
Is The Property Seller The Owner of Public Record​

Data Source(s)
· Mark the appropriate box indicating whether or not the seller is the owner of public record. The appraiser is instructed to contact the lender/client if the seller is someone other than the owner of record. The property may not be eligible for FHA financing if it involves flipping (resale in less than 90 days). The lender will make a determination for any exceptions to FHA’s Flipping Rule and advise the appraiser.
· Report where the information was obtained.
Sales Concessions Down Payment Assistance
· Mark the appropriate box indicating whether or not there is any financial assistance (loan charges, sales concessions, gift or down payment assistance, etc.) paid by any party on behalf of the borrower. If necessary, use the “Additional Comments” section of the appraisal reporting form, or an addendum, and enter the heading “Sales Concessions” completing the description.
· If yes, the appraiser is to report the total dollar amount and describe the items to be paid. If the sale involves personal property (e.g. above ground pool, lawn mower, furniture, etc.) it should be identified and excluded from the valuation. ​

 

[dobie]

I wasn't really was asking for advice on how to deal with this. I will submit the report with the usual caveats, CYA and boilerplate on what efforts were undertaken in pursuit of the document
consistent with many of the recommendations. Thanks to one and all.


I was really more interested in what everyone thought the motivations were in NOT providing the contract. The client can provide a purchase price but not a contract.

 

[AJL118]

How about CONCEALMENT of contract terms and just plain being CROOKED!

 

[TJSum]

The first thought that comes to mind, the actual selling price could be lower than what they are telling you, hoping if you hit their number they can play with the sales price kicking more closing help back to purchaser. Or the price they gave you could be legit, but there might be personal property included in the deal, etc. Usually when something does not pass the smell test, there is good reason.

 

[Truett Neathery]

Contract

Getting that contract is a MUST.

And, dang it, would it be too much to have them .pdf and e-mail the thing instead of 35 pages over a FAX...?

;^)

Dave...

I assume the property and the REALATOR or sales "Cordinator" is right near you, so just go get the thing !!

Maybe the buyer would like to know, as well -

 

[Mike Kennedy]

Mr. Tipton, thanks for saving me a few clicks. For those espousing DELAYING completion of a report and developing an INDEPENDENT, OBJECTIVE, Opinion of Market Value (which IS what it is whether a contract exists - or not) ........and apparently refuse to follow the USPAP and GSE Guidelines......


um......." dear client, I am unable to develop a well-supported Opinion of Market Value unless you tell me what the REAL number to hit is. I know you said it's TEN BUCKS.......but......but.....being a "team player and always a provider of good customer service......I realllly don't want to have to revise my report a month from now........ so...... plssssss .....tellllll me..thanks".

 

[Tim Hicks (Texas)]

What do you think about AMC's that expect appraiser's to obtain the sales contract? What do you think when they expect you to outline your steps to obtain the contract when they have not attempted to obtain it?

When I try to obtain the contract from listing agents, here are my frequent results:

1.Told to contact the lender because they already gave it to them.

2. Told to contact the selling agent even though you have no idea who that is.

3. Told that they can not provide it to the appraiser over confidentiality rules.

4. Sent the wrong contract for a different house or buyer.

5. Sent an unexecuted contract.

6. Asked why I would need a contract.

7. Told to contact the borrower (this never works, they never have a fax or e-mail copy).

8. Given the correct contract. Last for a reason.


Right now, I have four appraisals on hold. One the listing agent sent me the contract for another house on the same street and can't seem to find the one for the correct home.

One is a for sale by owner to a family member and they have no idea what I am asking for.

One is a new home construction that had an original contract, but now the owner is making upgrades and has added his own estimate of the cost of upgrades but the builder has yet to give him a new price. The lender and AMC both have not bothered to notice any of this, but continue to fax me the contract and his hand written guess of upgrade costs without attempting to read what they are sending me.

One is a foreclosure property and the listing agent states she has not received the signed contract back from the owner (bank) yet. This was two weeks ago.

Just try to obtain a contract for a HUD foreclosure sale. The listing agent never has it. They never know who the selling agent is. The borrower neve seems to have it and if they do they send you the wrong papers.