Increase sales price to cover closing costs?

[Mwilliams]

I have been getting more and more FHA requests saying that the sales price is, say $50,000 for a property but that they may need to raise it to $52,500 to cover closing costs if it is possible.

Isn't this just another way of begging for a high appraisal?

If they need to raise the price, shouldn't they just raise it before they send it to me?

Mark

 

[Pamela Crowley (Florida)]

I have been getting more and more FHA requests saying that the sales price is, say $50,000 for a property but that they may need to raise it to $52,500 to cover closing costs if it is possible.

Isn't this just another way of begging for a high appraisal?

Yes

If they need to raise the price, shouldn't they just raise it before they send it to me?

I think so. This is also going on in all kinds of mortgages so it's not just FHAs that I've had this request on.

We ought to send orders like that in to HUD, Fannie, Freddie, etc. Show them what we're talking about.

 

[Mwilliams]

I did not mean to exclude the other 50% of the appraisal orders I get with the suggestions of higher values if possible are mentioned.

I currently tell the client that whatever the subject appraises for is what it appraiser for (high or low) and , I will leave them with the exception that there may be some comparable sales out there that I missed or that did not come up in my search, and that if they are aware of any sales
that would help them out I will be more than happy to look at them.
(with no guarantee of using them)

The problem comes down to the fact that coercion of appraisers is blatant and obvious in the market these days. Appraisal orders with statements like "The house sold for $100,000 but is really worth more and we need it to come in at $110,000 to close the loan" are a daily occurance.

I lose about 20% of my annual business because of my refusal to "Squeeze another couple of thousand out of it". But when the lenders know that there is an appraiser out there that will "Make it happen" it
gets harder and harder to replace that business.

OK I'll get down off of the soap box now. I guess I was just wondering that since FHA allows the buyer to roll in closing costs and appraisal fees sometimes is there really a need to try to get the sale price up if closing costs are the only reason?

 

[Dan/Fla]

Correct me if I am wrong, please. I was told once that the Underwriter adjust the value of the appraisal, on FHA loans 1 or 2%, anyway. No I do not mean change with white out, but on their work sheet.

 

[ROBERT JONES]

I see it all the time. Keep in mind that the listing price is not gospel (on either end of the scale). You are given a copy of the agreement of sale and are supposed to analyze it. The agreement of sale is a market indicator. It doesn't matter what the sales price is, you are supposed to put together a defensible value estimate. If it is not there, it's not there. I don't get all caught up in the semantics, if it's not there I say so and move on to the next one.

Bob

 

[Dick Dolman]

Dan/Fla,

In response to your request to be corrected if wrong:

From HUD Handbook 4000.4 (DE Handbook)

"If the underwriter concludes that the appraisal report findings are inconsistent, or are otherwise unacceptable, he may contact the appraiser or return the case to the appraiser for reconsideration. The underwriter may also add comments or corrections to modify or amend the report by using the "Direct Endorsement Underwriter/HUD Reviewer Analysis of Appraisal" form (see Appendix 15). Comments or corrections must be supported by HUD valuation policy and adequately documented. This includes the adjusting of value, the removal or addition of repair requirements, and the overall determinations of property approval and rejection. However, it does not include using the Chief Underwriter's prerogative described in HUD Handbook 4125.1; this is only available to HUD staff. The appraisal report itself should not be "marked up" or changed in any way by the DE underwriter."


From HUD Handbook 4125.1

1-3. MODIFICATION OF REPORTS. If, in reviewing a case, the CU concludes
that the findings are inconsistent, or are otherwise unacceptable,
he may modify or amend any report; return any report for
reconsideration; or prepare a complete new report himself.

a. CU Prerogative.

(1) The CU may amend, modify, or correct findings to reflect *
the conclusions which in his judgment are proper.
However, his authority to raise value estimates is limited
to $1000 or 3% of the Chief Appraiser's approved
valuation, whichever is lesser. This authority shall not
be exercised more than once in connection with any one
property prior to insurance of the proposed mortgage, and
shall not be used in connection with groups of properties.

(2) The limitation on the use of this authority in the case
of groups of properties does not apply when subsequent

Page 1-3 11/75

HUD-Wash., D.C.
_____________________________________________________________________
4125.1 REV

(1-3) applications on individual properties are received from
owner-occupant mortgagors. Authority to raise valuations
* is given to the CU as a matter of policy and does not
involve valuation techniques. He may, therefore, raise
a valuation even though the value reported has been
limited by the Estimated Replacement Cost of Property.
The authority is given primarily to expedite processing
through elimination of counterproposals in cases where
the difference in the amount applied for and the amount
of the commitment permissible under the value reported
is such that either figure would be regarded as a
reasonable and accurate estimate by well informed,
competent individuals who have no interest in the
transaction or parties thereto.

(3) This authority may be used by the CU at his discretion,
with due regard to the Assistant Secretary-FHA
Commissioner's interest, for reasons other than expediting
processing if in his opinion its use is warranted. This
authority may only be delegated to the Deputy (or
Assistant) CU.

To summarize, a DE underwriter would be a bit dumb to increase a value.

 

[Richard Carlsen]

One must remember that when a seller agrees to sell his/her house at a price above the listed price, he/she is reacting to the market because the market is willing to pay more for a property if certain financing is available. That is called the market in action.

Does it not make sense to look at the sales price as the result of the market forces in action rather than to look at the listing price and try to analyze the motivations of the LO or someone else involved in the transaction?

Where is it written that if a seller accepts more than the listed price of the house and legally assist the buyer with closing costs, pre-paids, etc., that something fishy is going on. Where is it written that the price placed on a property by a broker and/or a seller is the true value of the house and any other price agreed to is suspect?

Come on. We should be looking at the market forces here and not trying to find skeletons in the closets.

 

[Wally Jones]

It's true the market forces can be fickle and change right before our very eyes sometimes. Part of our job, however, is to "analyze any current Agreement of Sale" and in so doing we occasionally find suspicious items. Rather than dismissing it as a changing market force, it's our duty to confirm why it looks "fishy". For example, if the seller's contribution toward closing costs causes the contract price to be increased beyond what our three approaches to the value of the subject property indicate, then I submit the fish is beginning to smell.

I agree it's easy to fall into the trap of crying wolf on every suspicious looking contract. That's where the "analyze" part needs to done carefully. I don't want to become so paranoid I lose sight of what the market is really telling me what a property is worth, regardless of list prices or contract manipulations. Neither do I want to overlook those fishy looking deals and become a future skeleton in the closet.

The balancing act continues...............

 

[Mike Garrett RAA]

What does the market support? If you can justify your value do it, if not...don't do it!. This has been going on much longer than I have been appraising which is 22 years now.

There is nothing magical about the list price, it is what the seller is saying they will accept IF the buyer pays in terms of cash (cash to the seller). If the buyer wants the seller to do something different then the price can be something different.

Paying a portion of the buyers closing costs is "typical financing" at least in my market!