Incomplete purchase contract provided

[exp579]

JGrant. I admire your conviction and dogged determination to stick to your ideals. In this and many other threads you have taken and defended the same stance.

It seems your conviction is so strong it is developing into a strong aversion to using the sales contract as an important data point. Many of your peers have offered the opinion that it should be considered and if applicable it should be used.

I have ambivalent feelings about this. It does kinda seem like cheating, but it is also wrong to ignore or discount market information. I have done both, used this reasoning when I thought it was appropriate and I have not used it when I did not think it was applicable.

You should develop your reports as you see fit, it is your opinion of value.

However, if you are doing a review assignment of someone else's work, please recognize your aversion to using the sales contract data point is not universally accepted and should not be used to dis-credit someone else's work.

You couldn't have said that any better!

 

[Rlong]

Arguing AGAINST considering the contract seems a little inane... at what point would you plant your flag and defend this? Opininate at $715,000,,, with a $715,001 Contract... How bout $716,000... $719,000 still gonna stick to your guns?

"So we agree on principle... now were just haggling on price"

One persons 5% accuracy is reasonable, maybe another's 1-2% is as well (I don't buy it, but more power to those that think they're that good!)

Bob in CO

 

[J Grant]

Sand piperapp, I might be giving off more of an aversion to using a SC price for consideration then is present. I always consider a SC price, and if it is near MV opinin, if the gap is small will try to find support for closing it. And there are many times I appraise above SC price.

I just have a problem with this wide range of value opine to SC price as long as it falls in vagueness.

If I review (which i tend to avoid now too hard), I certainly give the OA benefit of the doubt and if they show support for a SC price, no problem. Most I get for review are actualy refi's. for some reason...the ones where there is an inflated or faulty value over SC price, it is usually due to not disclosing market conditions or poor comp choices that are so bad it is easy to pick up on.

 

[J Grant]

Arguing AGAINST considering the contract seems a little inane... at what point would you plant your flag and defend this? Opininate at $715,000,,, with a $715,001 Contract... How bout $716,000... $719,000 still gonna stick to your guns?

"So we agree on principle... now were just haggling on price"

One persons 5% accuracy is reasonable, maybe another's 1-2% is as well (I don't buy it, but more power to those that think they're that good!)

Bob in CO

Rlong, again, I don't advocate or argue "against" a SC price in appraising!! It may seem that way on the thread because I am arguing one view. Please read my posts and see the many times I state if a SC price is supported, then it would be against common sense to opine differently.

There is no reason to appraise against a SC price or deliberately not meet or exceed it, just to prove a point or prove independence.

But the trend, from what I observe, is the opposite...appraise at SC price for no particular reason other than the SC price is there...and then a bunch of supposed market "Support" is explained, that really is not there.

A SC price 1 or 2% above MV opinion is so close that usually it can be met, unless there is market evidence otherwise ( and sometimes there is)

But SC prices falling within broad ranges can be "off" MV by 5 % and even 10% but still within the "range"...this is where imo the problem comes in.

 

[J Grant]

where was it stated the OP arrived at his opinion of value because of the contract price? stop jumping to conclusions and accusing people of things. you have no proof, and are actually ignoring the statement made by the OP just so you can berate someone. get a life.

Thanks for a nasty and mean spirited post that is berating me , you have no problem making me feel bad with harsh words....

I did not plan on coming across harsh in my post, but the OP offered zero explanation to why they opined the value they did, other than that it "happened" to be the same as the SC price. They also seemed unsure of raising it to the new price of 740k. They have not bothered to come back to the thread.

 

[Stone]

...appraise at SC price for no particular reason other than the SC price is there...and then a bunch of supposed market "Support" is explained, that really is not there.

That you got this from this thread is why I typically don't waste my time posting in threads you are dominating. Your "dogged determination" as it has been put can also be called "an inability to read what others write".

Have a nice day. My head is getting sore.

m2:

 

[J Grant]

Stone, I was not referring to what is posted here, I was referring to reports I reviewed, where a bunch of fake, maniuplated, "market support" was thrown in, perhaps I needed to make that clear.

I do read and comprehend what others write, however, few do the same for me, so it works both ways. I have people saying I don't consider contracts, for example, when I clearly stated numerous times that I do.

 

[Mike Kennedy]

If Fannie Guidelines Apply To The Completed Report

I recently completed an appraisal for an AMC. The AMC provided me a fully executed contract with included a couple counteroffers, the last of which indicated an agreed upon price of $725k. My appraisal happened to match the contract price of $725k. The agent calls me a week later as he obtained a copy of my report and indicated to me that the final contract price was actually $740k, ie there was a 3rd counteroffer that I was never provided for review. Apparently behind the scenes, the buyers and sellers are arguing over the value based upon my appraised value of $725 vs the final contract price of $740k of which I was not informed of at the time I completed my report. I've got lender's and agents contacting me with questions however I don't want to speak with anyone that I am not supposed to speak with outside of my lender/client. So the question is if I am provided with this final counter of $740k by my client, can I change the appraised value based upon this new information if I feel that this new value is still supported in my report without violating appraisal guidelines, USPAP, etc. I can see buyers and/or sellers being upset and want to avoid any liability on my part, ie I want to make sure I handle this by the book. Thank's for any guidance and assistance provided.

"Part B, Origination Through Closing
Subpart 4, Underwriting Property
Chapter 1, Appraisal Guidelines, Appraisal Report Assessment
June 26, 2012
Printed copies may not be the most current version. For the most current version, go to the online version at
http://www.efanniemae.com/sf/guides/ssg/. 586

Any request for a change in the opinion of market value must be based on material and substantive issues and must not be made solely on the basis that the opinion of market value as indicated in the appraisal report does not support the proposed loan amount.

For information concerning the process lenders must follow to address a change of the opinion of market value, see Guidance on Addressing Appraisal Deficiencies, below.

Guidance on Addressing Appraisal Deficiencies
If the lender considers an appraisal deficient, the lender has the following options for addressing the deficiencies:
• contacting the appraiser to address deficiencies contained in the appraisal report,
• obtaining a desk review or a field review of the original appraisal, or
• obtaining a new appraisal of the subject property.

The lender can return the appraisal report to the appraiser who completed the assignment, identify the deficiencies found, and provide justification for requesting correction of the deficiencies the lender believes make the report unreliable.

If the lender is unable to obtain a revised appraisal that adequately addresses its concerns, a desk or field review of the report may be obtained. The review must be completed in accordance with the USPAP.

Because the Scope of Work for either type of review allows for a change of the opinion of market value for something other than a mathematical error, the appraiser completing the appraisal review must be licensed in the state in which the property is located, and he or she must have access to the appropriate data sources and must possess the knowledge and experience
to appraise the subject property with respect to both the specific property type and geographical location.

The lender may forego either type of review and obtain a new appraisal. The new appraisal must, at a minimum, be based on the same level of inspection that was required for the original appraisal. For example, if the original appraisal was based on an interior and exterior inspection
of the property, then the new appraisal must, at a minimum, also be based on an interior and exterior inspection of the property."

 

[hastalavista]

Denis, you are buying into the common sense thing now? Show me how number hitting is now common sense! IF a SC price is well supported, or even adequately or reasonably supported, reconcile to it, yes, it would defy common sense to do otherwise.

That is all I (and, I think, the others... at least the posts I've read) am saying.

But when the main support for the SC price is the contract itself (there are many times a SC price is not well supported ,but falls within a range), then tell me where the "common sense" comes in.

I didn't read anyone making the bolded argument?
What I read (explicit and implicit) was: The market is analyzed, comparables that are the best substitutes are considered and selected for the SCA, and that the significant elements of comparison are adjusted; the result is an adjusted range. Presumably, the opinion of market value falls within this range.
Then, one considers the contract price as a data point.
If the contract price falls within the adjusted range, I would consider that a very good indicator of market value. More so if the process used to negotiate the price was consistent with the elements of the definition of value (market exposure, both parties acting in there best interests, well informed, etc.).

That's where "common sense" comes in.

If you (me, or another) were to do all of that, find that the contract price falls within the adjusted range, but determine that it isn't a reliable data point and conclude another point-value, I'm fine with that. But, I would make (and expect others to make) a very persuasive argument why, if the contract fits within the analysis, my opinion of value is a better indicator than the data point the contract represents. If I can do that, my value is credible. If I cannot do that, I think the credibility of my value is questionable. You may not.

Business sense, yes, it is good business sense to opine to a SC price. Is business sense and common sense the same? Either way, still looking for support from a published source or recognized appraisal authority. Something, other than the posters repeating "It's common sense" over, and over and over...I guess they figure if they repeat it enough times, then it's true?

This is not a "business decision". This is applying analysis using all the data that is available.
And, when all the pieces fit, it is common sense (like it or not) that the contract price is the market value.
When the pieces don't fit, it is common sense that the contract price is not market value.

I find it interesting that all the market participants are presumed to exercise common sense (implicit in the Definition of Market Value), but you are making an argument that appraisers relying on the same common-sense reasoning is somehow an illegitimate process?

And, none of the above is contrary to providing an independent opinion of value.
However, it is contrary to considering the contract price as a legitimate data point. I consider the contract price as a legitimate data point; how it gets considered in the final point-reconciliation is based on my independent analysis leading up to that decision: If it fits within my analysis, it gets a lot of consideration. If it doesn't, it gets little if any consideration.

This is the point which I think you (JGrant) are not giving enough consideration to: Everything leading up to considering the contract price as a data point is independently developed. The contract price, terms and conditions of the sale have nothing to do with 99% of the valuation analysis. It is only when all of this has been done, that the appraiser then considers this final piece of market evidence. There is no inconsistency in completing an independent valuation analysis and concluding a value that is equal to the contract price if the development process up-to-that-point is credible. It makes no sense (common or uncommon) not to consider the contract price as the final data point in the analysis. At this stage, the consideration is simple:
A. Is it within the range (what I think the subject property is worth as expressed as a range)?
B. Is there any reason why the negotiated contract price is not the most credible price-point for my opinion of market value?

If the contract price is not consistent with "A", then B is easy to answer (the answer is the contract price is not market value).
If the contract price is consistent with "A", then what is the credible reason not to use it as the final confirmation... at its price...of market value?

If you have a reason, it better be compelling (and, they exist; just provide the reasoning).
If you don't have a reason, then the contract price becomes the compelling data point.

The argument that the contract price is not part of an independent valuation analysis is silly when the contract price is the last piece of data considered, and the development process up-to-that point has not considered the contract price at all.

 

[J Grant]

If the contract price falls within the adjusted range, I would consider that a very
good indicator of market value.

Me too, but, perhaps with a bit higher standard...if the range is broad, then to be a good indicator of MV, the SC price has to do more than merely fall within the range, it should be on the side of the range (high , low, or mid) where best data shows most support .

For example, if the SC price is 230k, and the range is 210k-240k of adjusted value, what is it about the subject that makes it more similar to the higher priced sales. Where is the market going re, listings, pendings, etc, and what are the conditions and marketability of subject community or condo complex, and does that affect MV ? Many buyers are not aware of marketability problems that affect values, or misinformed by Realtors of the impact. Therefore, though the SC price may appear to be MV, it may not be due to factors the buyer is not aware of, factors we found in our research.

More so if the process used to negotiate the price was consistent with the elements of the definition of value (market exposure, both parties acting in there best interests, well informed, etc.).

Fine, agree, but again, the MV is about the property...not the contract. The contract is the buyer's perception of MV, and may be spot on. But many times buyer perception is colored by emotion, a degree of being misinformed, or pressured by a realtor etc, (just as a seller might be the same.). Bbut I agree, in a well developed report with good data, a MVO that differs from a SC price, often the SC price is above the range, or below the range...we do opine MV above the SC price. as well, it is not always "below"

That's where "common sense" comes in.

Agree.


If you (me, or another) were to do all of that, find that the contract price falls within the adjusted range, but determine that it isn't a reliable data point and conclude another point-value, I'm fine with that.

Agree...but some will go with the SC price even when it is not a reliable data point, as long as it falls somewhere, even marginally, in the adjusted range.

But, I would make (and expect others to make) a very persuasive argument why, if the contract fits within the analysis, my opinion of value is a better indicator than the data point the contract represents.

Er, isn't that the entire appraisal report? But yes, make a persuasive argument, but truly, when a SC price is not supported, if one presents the best data and discloses true market conditons, it is revealed within the report. The client and users readily understand it. Sometimes a stubborn realtor objects. The times my MVO is below SC price, it is so apparent, and I do take the time to explain it, I rarely have a problem. Most times, the SC price is re nenogiated to the MVO.

If I can do that, my value is credible. If I cannot do that, I think the credibility of my value is questionable. You may not.

Agree.