Now I'm Really Steamed!

[Tiny280]

Koert:

Sounds like you've got a pretty strong market there. I stopped making time adjustments to value around 06/01, when my market told me to stop making time adjustments.

Sounds like you've been spanked by a harsh review. As for myself, when I review an appraisal, I always give the other guy the benefit of the doubt - until there is clear and compelling market data to the contrary.

I, and the property owner, were victimized by an incompetent reviewer last year. Mo Ron, the reviewer, hacked 40% off my opinion without so much as offering any alternative comps or other market data. Poor guy who owned the house had to sell his investment in a hurry (35 DOM during the holiday season) at 7% below my opinion of value. I have yet to hear from the state board about any forthcoming disciplinary actions against Mo, for his numerous and blatant violations of USPAP, but I do have my fingers crossed.

So, in summary, I always listen to my market, and small differences of opinon of 5 - 10% are just that - small matters, unless there were factual or mathematical errors. The appraisal I just reviewed gave an opinon of value that was 30% above any rational value. It'll take ten years for this market to appreciate that much.

On average, I'd say approximately 25% of the reviews I've done were just difficult properties that were bound to raise some red flags - the other 75% were blatant stretches, well beyond the level of small differences of opinion. Had one last week where the "appraiser" actually fabricated two of the three comps, and ignored or failed to notice the commercial value of the third. That one was an 80% stretch 8O .

 

[Ross (CO)]

There is absolutely nothing wrong with a buyer paying extra to acquire the house thay want to live in ! You must repeat that line to your client more than once the next time you talk with them. Paying extra, or the lender lending above-and-beyond your opinion of value is all o.k. in this game ! These dudes always try the "better school district" line as a magic bullet for you to throw in another $10K for location, assuming all your comps are outside the said school district, which I'll bet is not the case. Then, too, is the rambling blab about how you overlooked other sales at higher prices. So long as SOMETHING sold for more, they feel their price is good, all the while failing to recognize that these other sales had 1000sf more living area, the 4th or 5th bedroom, the 3rd garage space, and the finished basement. Stick to your guns !......and keep repeating to your client in the next few days that "it is really o.k. with you if these folks pay extra for the house", ......and maybe your client will share that sentiment with them. So what if the seller has to lower the price. Not all greed is good, especially if you are being tarred and feathered by this doofus......and boy I sure would give a call to the head person on that Board of Realtors !

 

[Ross (CO)]

There is absolutely nothing wrong with a buyer paying extra to acquire the house thay want to live in ! You must repeat that line to your client more than once the next time you talk with them. Paying extra, or the lender lending above-and-beyond your opinion of value is all o.k. in this game ! These dudes always try the "better school district" line as a magic bullet for you to throw in another $10K for location, assuming all your comps are outside the said school district, which I'll bet is not the case. Then, too, is the rambling blab about how you overlooked other sales at higher prices. So long as SOMETHING sold for more, they feel their price is good, all the while failing to recognize that these other sales had 1000sf more living area, the 4th or 5th bedroom, the 3rd garage space, and the finished basement. Stick to your guns !......and keep repeating to your client in the next few days that "it is really o.k. with you if these folks pay extra for the house", ......and maybe your client will share that sentiment with them. So what if the seller has to lower the price. Not all greed is good, especially if you are being tarred and feathered by this doofus......and boy I sure would give a call to the head person on that Board of Realtors !

 

[KD247]

Tiny,

I don't know if I would even call our present market strong. A few of months ago it was pretty clear that ultra-high value stuff was declining, and the run-of-the-mill properties were increasing. Now, agents are getting offers on the 6-10 million dollar homes again and some small condominiums are selling like gold-plated hotcakes, but the mid-range tract homes in some areas are stagnant. The market is just confusing! What's the market going to do in March? Ask me in April.

All the more reason to approach each appraisal without preconceptions and (how do the state it on CSI?) "let the evidence tell the story".

Unfortunately, it's been ages since I've been able to duke it out with a reviewer. Maybe because I'm doing less problem properties, maybe because my good clients are just sending my work through without reviews. The last good fight I had was when a reviewer wanted to ignore the subject's location next to a golf course - even though neighbors with the same location had sold for 30-40% higher than other homes in the area. Now that I remember, the reviewer thought my adjustments for "hardscaping" (I explained in the comments that the subject had about $75,000 in walkways, patios, walls, stonework) were for an oak tree in the front yard.

Here's a question that deserves some thought... If buyers are snatching up any available home, regardless of price, because of 103% financing, do we label this as increasing values, or would you consider this to be just an increase in irresponsible speculation with no downside for the buyer?

 

[graindart]

I don't take the contract or selling price much into consideration, unless it's within a percent or two on the market value I come up with. I've seen too many ficticious contracts that I could sense that something else was going on behind the scenes. I just got done with one that had a contract price of $168k, but the high-end of my range was $160k maximum! When the seller saw that I didn't hit $168k, I got the usual story about how they'd already packed their stuff and that this was going to kill the deal, etc. I explained that he could sell it for whatever the contract price was, but that the market value for the property wasn't over $160k. A few more minutes of discussion and I politely asked what the "real selling price" was.........a couple seconds of pause.........and it came out that the real selling price was $160k.........gee, what a surprise! It turns out that the buyer has bad credit and this is the only way that they can get financed on the deal. To my surprise, even after admitting the real selling price was $160k, the seller continued to try to convince me that the actual market value for the property should be $168k, even though there was a comparable 2 blocks away that was almost a mirror image of the subject that sold for just under $155k.

 

[Blue1]

Koert,

I appreciate your input.

1) The current contract price is $10,000 above the higest comparable in the neighborhood, therefore, it's not my "best" comparable.

2) The lower sales were equivalent to the subject. That's why they're called "comparables."

3) The buyers are represented by a knowledgable agent who actually agrees with me. It's the SELLER'S agent who is not even a memeber of the local MLS.

So........this assignment has failed your "first questions."

I too, am in a rising Market and realize comparables are often low. However I research not only recent sales but historical sales and current available homes. This gives me a good idea of the % of increase over time. In this case, the sale price is WAY over the current Market trend. If this sale were closed and I found it I would reject it. It would stand out like a "sore thumb" among the other listings in the Market.

 

[KD247]

Blue,

I had to re-read your post... The BUYERS are represented by a knowledgeable agent... but they're the ones who have offered the high sales price! Are they being forced to buy this particular property? You have to admit, that's kind of funny. It sounds like the seller's non-MLS agent did a great job in getting full-value plus. So the buyer's agent agrees that the price is way too high, but is happy to submit their offer. Great agent!

Regarding my "first questions". I still don't see any reason why your contract price isn't your best evidence of typical market reaction to the subject. How is this deal atypical - other than the fact that it's at a very high price?

The lower sales "were" equivalent to the subject - but at another point in time. That's why it's called "bracketing". (Just joking - couldn't resist.)

The answer might be in analysis of current listings. If there's an equivalent substitute available for your subject at a lower price, that would be a clear indication that your buyers aren't typically motivated.

Just because a sale doesn't fit into your trend doesn't mean it didn't occur. All the "sore thumbs" in my area, and there have been quite a few, have been assimilated into the trend line after a few months.

That doesn't mean that at some point, a bunch of homes aren't going to be sold at the very top of the market. Back at the end of 1989 there were lots of sales at market value, but market value dropped dramatically over the next six months and made those sales look incredibly high. But, even then, our job was to estimate current market value, not a net present value based on a forecast of decreasing values.


(I wrote the following after reading Graindart's post, but before seeing Blue's post)
"USPAP Standards Rules 1-5(a) and (B) requires an appraiser to analyze (1) any current Agreement of Sale"

"The requirement for the appraiser to analyze and report sales history and related information is fundamental to the appraisal process. Just as the appraiser must take into account pending and recent sales of comparable property, the appraiser must take into account any pending and recent sales of the subject property itself. This is not to say that the agreed price in a pending or recent sale of the subject property is necessarily representative of value as defined in the report, but the appraiser’s failure to analyze and report these facts may exclude important information from the sales comparison approach to value."

My interpretation is that, if the estimated value differs from the contract price, the appraisal should include an explanation why the contract does not represent a typical market reaction to the property. The definition of market value suggests five possible reasons why a buyer may be responding to a property in an atypical way.


Finding that a contract is fictitious would absolutely meet the requirement of analyzing the current agreement of sale. If fictitious contracts are commonplace in a market, that's a pretty good reason for not strongly considering the contract price. But, I'm not sure how I would word that in a report!

I guess my real beef is that, with all the negative attention given over-appraising, many appraisers just assume that the lower appraisal is always the more accurate appraisal.

Koert

 

[jtrotta]

Koert;
Will have to agree with most of your responses, but strongleywith your last statement and last sentence. I think we always have to take some time and look over the marketplace; it's ever changing, and sometimes we don't get to see many private sales or their contracts, especially in a "hot" market. When we get busy I think we need to make time to review the market, talk with agents & builders to get a feel for whats happening; after all don't you know folks that ask you for similar information 8)
In local coffee shops, I run into builders; agents; and attorneys that ask all the time. So I always poke them for information, how else would you know various cost changes taking place within the industry :?:

 

[KD247]

Jtrotta,

Please don't take the fun out of this by agreeing with me! I think I was editing my last post while you wrote yours, so maybe we can still find something to debate.

I had two "real-word" wake-up calls recently. A neighbor put a house on the market with a price that I thought was 20% high. Had several "good" offers the week it hit the MLS. Second, my parents got several bids (really beat the bushes for the best prices) on building a new house in this area. All of the bids were at least 50% higher than I expected. A good friend's "discounted" bid was one of the highest, because demand is so high.

With so much business, I haven't taken much time lately for coffee shop conversations and that's why these surprises caught me off guard.

Thanks for reminding me that our local insight is our best hope for a little job security.

 

[MARKETVALUE]

I think koert and I have some common ground here. I view things from the same angle in this case. If this was a refi issue then it would be different.

I've always worked by the true definition of market value being what someone is willing to pay for something in an open market with cash or its equivalent, with the buyer and seller having resonable knowledge of the market place (both parties in this case were represented by licensed professionals) and no external forces at work.

If a contract appears high to me, I start looking for why. Often its with the damn Closing costs being rolled into the loan. But if I cant find a reason after dilligent research why the contract appears to be higher than my comps sales, I dont just kill the deal. Interview both agents involved, in this case as Koert pointed out, the buyers are represented------why would any agent worth their salt put a contract on a property he/she thought was overvalued? Are the purchasers ignoring the advice of their hired professional help? I'm not directly involved in this one obviously, but it seems to me if everything appears to be on the up and up, i would make sure I A) interivewed all parties (buyer, seller, buyers agent, sellers agent), B) write an extensive addenda documenting everything and then C) find a way to get it there without lying, cheating, stealing, or fabricating information.

Are we in better condition then some of the other comps? What is our relationship with the highest mobile home sale in the area? Is it possible we are on the top end of the MH market? If so, why? addenda, addenda, addenda

Im not telling anyone how to do their job here. But if you have a legit contract, and all the parties qualify of sane mind, who am I to tell someone the property isnt worth it???

Just my two cents.....

MRM