Didn't Take High Offer Because Of Mean Old Appraiser

[Terrel L. Shields]

That's exactly what happened. What fog of denial do you operate in?

I'm with Elliot on that. Yes, there was pressure to elevate appraisals. But the biggest problem was appraisers using sales as "comps" that were inflated thus creating a slippery slope UP, not down. The failure to routinely identify over-priced properties and either reject or adjust them led to higher prices without the appraiser doing one thing overtly dishonest. It was the easy thing to do. How many sales included a Hummer, World Cruise, or six months paid mortgage under the table, and the appraiser didn't blink at a 104% SP to LP? How many Realtors disguised this crap willingly knowing it would mislead the appraiser? It wasn't easy to tell, especially if you were working day and night and didn't take time to investigate yourself. The MLS and public records were your only source and often clues in that MLS were ignored. Sale prices in a subdivision were used even when the sale price was 20 - 30% higher than the list price...

And people assumed you would "grow" into the sale price. I remember a (semi-honest) builder building two houses. I did the construction loan. The builder gave me the contract for the two houses but was telling me that the buyers were investors from California, she knew it would not appraise for what the contract was, but this was just to get the money to build the house. Indeed, the houses were built, the investors bought the houses for about 15% more than I appraised them. They sit vacant for months until they dropped the rent to market. And years later they sold the houses for less than they gave for them.

How many appraisers used the following as a comp?

 

[J Grant]

Terrel, we are kind of in agreement, in my posts, I identified how the 2 intertwined , number hitters over valued sales which became a new round of comps that made their way into honest appraisals. An honest appraiser did try to identify perks and separate them out, or would not use the highest flip sale as a comp. But even with that, the comp sale prices climbed higher and higher. AND, mortgage brokers tended to use a value pusher as their go to appraiser compounding the problem.

It would be nice if this was a nostalgia issue, but value inflating is alive and well .What the HVCC failed to address is these appraisers don't need a mtge broker pressuring them, they do it all by their little ol selves and appraise to highest on refinances, not just purchase assignments. They believe in a mission to bring in the high price and "not be behind the market" Read the posts here...what do some of them convey? And some AMC's are nothing more than smoke screens for assigning more of the work to deal friendly appraisers (outlined in other threads)

There are still pushed value appraisals being done, even though imo they are a lower percent of appraisal volume now, they are still a large enough segment to skew market prices in an upward direction.

 

[Peter LeQuire]

Multiple offers are not unlike multiple orgasms, sometimes the best one is not necessarily the highest one, I read that on the internet somewhere, USPAP is silent on the issue.

This is not my experience - I would never get the two confused, though I am happy about the fact that the ASB hasn't taken a stand on the issue.

As to the back and forth about cash vs. financing: most well-advised sellers confronting multiple offers tend to accept the offer that has the highest probability of closing that results in them receiving the highest amount in the shortest period of time. That said, assuming a cash buyer is well advised or well informed, she faces the same appraisal dilemma a loan-dependent buyer does - the appraisal not supporting the sale price - though she would have the option to consummate the sale, while the loan-dependent buyer would not. Which, IMO, introduces a certain amount of ambiguity in the GSE value definition, which treats cash sales the same as "financial arrangements comparable thereto".

 

[J Grant]

The problem is not in the GSE value definition.. The cash as commensurate with "financial arrangements comparable thereto" , means at closing the funds are disbursed as cash whether the deal used mortgage financing or not. From there appraisers are supposed to analyze/adjust if sale prices using financing were affected by concessions, special financing/terms etc.

I bet in any market area bubble, most of the leading high price sales turn out to be low money down financed sales. if majority of high sale prices were the cash sales, or more cash down sales , there would be no bubble. The bubble happens when buyers can no longer sustain the carrying costs of the high priced properties...thus they withdraw from the market or desperate to get out from high payments, try to sell....and only then discover they are underwater on their mortgages. Bubbles also happen because of refinances. When prices rise, people take out high LTV cash out refinances or equity lines of credit. Thus, even people who did not buy during a boom become over leveraged in financing.

It is not a coincidence that bubbles happen in low interest rates or relaxed credit cycles, which shows the link to financing, as cash buyers are unaffected by interest rates.

An area experiencing a bubble and an area with high prices that are sustainable, such as wealthy enclaves/high income areas, are two different animals. (though a bubble can happen in a high income area when same dynamic of over leveraged financing creeps in)

It is the over leveraging of financing and inability to pay the high mortgage and carrying costs /underwater on loan unable to recoup equity on sale that marks a bubble. A cash buyer, even if value declines, has no mortgage or a small mortgage if they financed, thus can afford to hold the property or rent it for a cash flow. The underwater mortgage owner can't rent it for enough $ to cover carrying costs, the investor buyers who could not rent for enough to cover costs triggered the sell off in the boom/crash.

 

[Peter LeQuire]

In a residential RE purchase transaction, typical mortgage loan financing is not "equivalent to" cash. A prudent, knowledgeable seller would not accept an offer contingent on a mortgage loan if she had a cash offer with otherwise identical terms - sellers don't necessarily care how the money gets to the closing table. All the stuff an appraiser is supposed to analyze happens before monies are exchanged at closing.

 

[J Grant]

Equivalent to cash means the funds are disbursed as cash at closing. That's it, end of story. It is up to appraiser to analyze market and each transaction, if it was financed or all cash offer , and whether either one had any impact on price. We agree, appraisers analyze the stuff that happens...

If a seller got 2 offers at same price one all cash and takes the cash offer, that would be a market reality

The reality of a bubble market is majority of cash offers and financed offers are NOT at the same (high ) price,...if that were true, there would be no bubble.) In a bubble, more of the highest price offers ARE financed, and as the bubble grows, a greater percentage of the highest price sales are the low money down deals, including FHA. . As long as a financed offer has a reasonable chance of closing, it's worth it for some sellers to try to get the X% $ more because funds are cash to them at closing. That is why there is so much pressure on appraiser to make value on a financed deal...seller would lose their bigger profit if it cant close at the highest price evah....

Some financed offers have an appraisal contingency, a smaller number strike the contingency. Cash offers have no financing contingency, though a number of cash buyers do take financing as an option.

 

[Peter LeQuire]

The price is established before the money changes hands. My circle of acquaintances is admittedly limited, but I don't know one person who is professionally involved with money who doesn't recognize the time/value of money. Layered with the vagaries of loan processing, for a seller to accept the same price for a transaction laced with the uncertainties of a loan-contingent sale as for a cash sale is irrational - and uber alles we assume market participants are rational.

",,, it's worth it for some sellers to take a small risk and get X% more...". So, a financed transaction is not the equivalent of cash.

 

[J Grant]

The price is established before the money changes hands. My circle of acquaintances is admittedly limited, but I don't know one person who is professionally involved with money who doesn't recognize the time/value of money. Layered with the vagaries of loan processing, for a seller to accept the same price for a transaction laced with the uncertainties of a loan-contingent sale as for a cash sale is irrational - and uber alles we assume market participants are rational.

",,, it's worth it for some sellers to take a small risk and get X% more...". So, a financed transaction is not the equivalent of cash.

Sorry...you are free to hold that view personally, but when we appraise, we let go of our personal views and appraise to the MV definition (am sure you agree ). Like it or not, the MV def is cash equivalency. And cash IS equivalent to financing because at closing, the funds are disbursed as cash whether a mortgage was present or no mortgage. Time value of money, sellers or buyers taking risks around financing is all part of the market. So...get over it lol...

What happens in prices whether cash or financed is part of the analysis in an appraisal.

 

[Elliott]

When I'm inputting sales, if its "s07/17;c07/17," its most likely a "cash" sale. If its, "s07/17;c04/17," its conventional financing. Of course sellers take a clean cash sale, no inspection contingency, no financing contingency (property appraisal and buyer qualifying, cleaning up their credit). Its that bird in the hand advantage. We don't make the rules, we just have to follow them.

 

[Peter LeQuire]

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