Quote MV:
Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transactions.
I see a relative spurt of clarity in this part of the MV definition. It doesn't say "average terms" available in the market, nor is "conventional" financing pinned down to whatever market offerings were popular and considered prudent 20 years ago.
So, I believe appraisal orthodoxy and the current definition of MV has us stuck with accepting current financing of the comps with ARMS, 80/20's Option ARM's, etc, not requiring adjustments. However, nothing stops an appraiser from making prudent & defensible "house of cards" comments to their client, if they want.
Maybe a bubble thread link could be incorporated by reference in the reports....or a cut and paste, with permission from Wayne
Roger, according to elements found in USPAP and other sources for market value:
o Identification of the specific property rights to be appraised.
o Statement of the effective date of the value opinion.
o Specification as to whether cash, terms equivalent to cash, or other precisely described financing terms are assumed as the basis of the appraisal.
o If the appraisal is conditioned upon financing or other terms, specification as to whether the financing or terms are at, below or above market interest rates and/or contain unusual conditions or incentives. The terms of above- or below-market interest rates and/or other special incentives must be clearly set forth; their contribution to, or negative influence on, value must be described and estimated; and the market data supporting the opinion of value must be described and explained.
The following definition of market value is used by agencies that regulate federally insured financial institutions in the United States:
The most probable price which 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 and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
o Buyer and seller are typically motivated;
o Both parties are well informed or well advised, and acting in what they consider their best interests;
o A reasonable time is allowed for exposure in the open market;
o Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and
o The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.
(12 C.F.R. Part 34.42(g); 55 Federal Register 34696, August 24, 1990, as amended at 57 Federal Register 12202, April 9, 1992; 59 Federal Register 29499, June 7, 1994)
Fannie Mae's preprinted market value definition:
The most probable price which 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. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
(1) buyer and seller are typically motivated;
(2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest;
(3) a reasonable time is allowed for exposure in the open market;
(4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and
(5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.
*Adjustments to the comparables must be made for special or creative financing or sales concessions. No adjustments are necessary for those costs which are normally paid by sellers as a result of tradition or law in a market area; these costs are readily identifiable since the seller pays these costs in virtually all sales transactions. Special or creative financing adjustments can be made to the comparable property by comparisons to financing terms offered by a third party institutional lender that is not already involved in the property or transaction. Any adjustment should not be calculated on a mechanical dollar for dollar cost of the financing or concession but the dollar amount of any adjustment should approximate the market's reaction to the financing or concessions based on the appraiser's judgment.
All of the above is vague when it comes down to adjusting for financing or special factors that may be affecting the sale.
What is above market rate financing? Is that a subprime borrower paying a higher interest rate due to his credit score, or LTV, or DTI, or no closing cost loan?
Does it matter that availability of 100% LTV financing is being curtailed or minimum credit scores are being raised to qualify for a loan?
Seems like to me the market value floats with the available financing for the least qualified buyer.
