Need Advice...

[Warren Sumner]

Appraising a custom townhome with all the appointments; hardwoods, custom cabinetry the whole nine. Rests in a premier townhome development in the cityof Durham, NC. There are new construction comps in the development and I've had to go outside of it to pull resales.

Anyway, the subject closed for $196K through MLS two days before the appraisal date, and the purchaser already wants to refi. I've applied adjustments that I consider reasonable and I can only justify $191K. Close obviously, but far enough away where I'd have to really push or use adjustment factors that I'm not really comfortable with to "pull it in" for sales price. I have one pending sale in the 'hood that may justify the sales price, but it isn't scheduled to close for two weeks and who knows at exactly what price. Conventional wisdom says, "no brainer, appraise it for $191 and go home" but if the pending closes for 196, conventional wisdom ain't gonna save me from irate clients and I don't want to appear to be an idiot. Arguments could be made that "hey, someone was willing to pay 196...it's gotta be worth it."

HELLLLP!!!! WHat would you do???

 

[Richard Carlsen]

Your pending sale has had a meeting of the minds and other than the actual closing, has all of the properties of a sale. I would say use it. It may just well be the best indicator of value. And if it won’t close for 2 weeks, maybe you could just get backlogged in work long enough for it to close before you finish this report.

You also forgot the 4th comp, the subject. You say you can only find $191K. The buyer/owner, who represents the market, saw $197K in it and paid that for it.

I know you can't use the subject as a comp but you are not being asked to appraise it for the sale. Therefore, you have to assume that the market value of $197K represents market value. I would say that you need to look at the adjustments real hard. 3% is not too much of a difference and if you use the pending sale, the sales price may be perfectly justified.

 

[Blue1]

In case you just can't "come in" at the value, and fear looking like an "idiot" here's a suggestion:

Be very polite and humbly request "better comps." Tell them that your exhaustive reasearch yielded no better comparables but, if they know of any better sales, you'd be happy to review them. 99.99999% of the time you will recieve no better comps.

Richard's advice seems good but be careful and make sure the market supports the higher value.

From a "fellow idiot"

 

[Frederick R. Ruffell]

Richard and Warren, The following is from section 406.02 of Fannie Mae selling guidelines (0412/02). This and other sections are being discussed and debated over on the great new forum Fannie and Freddie Mac.


The appraiser may use the subject property as a fourth comparable sale or as supporting data if the property previously was sold (and closed or settled). If the appraiser believes that it is appropriate, he or she also may use contract offerings and current listings as supporting data. However, in no instance may the appraiser create comparable sales by combining vacant land sales with the contract purchase price of a home (although this type of information may be included as additional supporting documentation).

 

[liznindy]

Use the subject as a 4th and the pending sale as a 5th comp. I have been successful in getting the contract sale price and terms from Realtors prior to the sale closing in order to use a pending as a comp...pendings are typically the most current market information.

If your comparables' sale prices bracket the subject, it makes sense to use the subject's recent sale price for your opinion of value. .....After all, it (the subject) is the BEST comp you have!

 

[Austin]

These are all good suggestions, but it seems more like you are verifying the reasonableness of the subject’s sale price instead of appraising it if you do what was suggested above. Basically to boil all of the above suggestions down, it also seems to me that you are using another definition of market value. Market value asks for “most probable price” and these suggestions are answering the question “highest price.” This is how prices got ratcheted out the roof.
Appraisers rarely do it for obvious reasons, but you should pick three comps; one most similar to the subject, one comparable but inferior; and one comparable but superior and adjust for physical differences and see what it looks like. If the three comps are representative of the market type (not outliners) property, that is the price that should be reported. To many appraisers making the right numbers is what is causing FNMA to look at alternative methods. Most if not all markets have a range of at least 10% due to general randomness and if the lender had a brain they would realize that and not be concerned with a 3% difference.

 

[Warren Sumner]

Thanks for the input and advice ladies and gents. I agree with Richard on principle, but I haven't been successful obtaining contract price from realtors, when they bother to return my calls. They all seem quite protective over that for some reason. I don't see the big deal.

After setting the report down for 3 hours, I have reviewed my adjustments and am confortable with them. They are by no means conservative. I have included the subject as Comp #4 and have explained that in my report. The pending is included as Comp #5. If that thing sells for its full list, it would support the sold price of the subject. But if it closes for a few thousand less, as most listings do, it will pretty much confirm my indicated value of 191K. None of my sold comps support the subject's closing price and I don't really have a high bracket in this. It just looks like this fella paid for some of those upgrades out of his pocket. I'm just going to offer to recert free of charge if the pending closes high. I feel that's more than fair and probably the best route.

Hey, but I do appreciate all your comments! Thanks for your input.

 

[Jo Ann Meyer Stratton]

Have to jump in on your expression "recert". A recertification of value would not change the original effective date and opinion of value. If in the future you will be considering current market conditions as of that future date (because of the pending sale becoming closed), you will be doing an update to an appraisal. See page 100 of 2002 USPAP or page 90 of 2001 USPAP. And the discussion under the thread of "Reconsideration of value".

 

[Warren Sumner]

Sorry...was in a hurry and misspoke Should learn to edit what I write!!!

 

[David C. Johnson]

<span style='color:darkblue'>Warren,

If it is absolutely key information you seek, leave a message like the following to both listing and sales agents at the same time:

"I have a few questions about one of your properties. Please return my call at your earliest convenience at 555-5555. Thanks."

Yep, as you know, they may be disappointed when they find you are an appraiser, but, you may have some non-confidential info about the/that market that they can use. Always leave them with the thought: "boy, I am glad I returned that call," if possible.

Oh, yeah, consider starting out by saying: "Congratulations on your sale of 333 Podunk Avenue! -- it sure appears you're the one property owners should talk with about selling in that neighborhood!" (Flattery and stuff may not get you everywhere, but may do it for the contract sale price.) "Geee, I see from the history section of MLS here that you only had it on the market for, let's see...here it is, err, four hundred and thirty-two--

Anyway, I'm currently appraising one of those townhouses and I'm interested in knowing how close to the listing price of $555,555.95 the property sold for? By the way, with my client's and the property owner's permission, I sure would not mind sharing the appraised value with you..."

Remember, that property has not closed yet -- no money in the bank. What you have to tell them (and be quoted with, as an appraiser) could conceivably help recover from, say, an early case of temporary buyer's remorse; and of course, if your info is not supportive of their goals, it simply will not be repeated -- no lose situation for the Realtor.

Just running my mouth/fingers...

Good luck.

dcj</span>