Opinion of Value is a Range

[redfish]

In regards to mortgage transaction decisions and regulated lenders...

I had this discussion with a client who was a senior management member for a large California Bank.
We both agreed that a value range was more reasonable and credible than a value point.
But the executive pointed out to me "Denis, we cannot determine the appropriate loan amount based on a range. We need a point value to determine the loan amount".
His explanation satisfied me. :new_smile-l:

This real world/real user explanation baffles me. I would contend a range would allow for more negotiating of term, rates, downpayment and risk management in general from a lenders prospective. The number, the number, the number...... what happened to people making decisions on more than just a number. If a potoential borrower has a credit score of 805 and the appraised value of the home is a range from 500,000-525,000 I would make a loan based on the 525K. Same situation but a borrower that has a score of 700.... $500,000(all things equal).

 

[Thomas Fiehler]

I remember about 25 to 30 years ago the appraisal powers (SREA & AIREA) tried to float that idea and supported it by saying that a range is much more accurate than a specific number but the lenders would have nothing to do with it-they need a specific number. I guess that would require too much for an underwriter to think about.

 

[CANative]

"Denis, we cannot determine the appropriate loan amount based on a range. We need a point value to determine the loan amount".

If so much hinges on our point value why is everyone so reluctant to pay appraisers a decent fee, allow for a reasonable time frame to do the analysis and reporting and give us some respect?

*A notable exception is a "large California Bank."

My answer to why a range is not correct: The definition of market value is stated as the most probable price (singular). lol

 

[hastalavista]

This real world/real user explanation baffles me. I would contend a range would allow for more negotiating of term, rates, downpayment and risk management in general from a lenders prospective. The number, the number, the number...... what happened to people making decisions on more than just a number. If a potoential borrower has a credit score of 805 and the appraised value of the home is a range from 500,000-525,000 I would make a loan based on the 525K. Same situation but a borrower that has a score of 700.... $500,000(all things equal).

It is not unusual for two appraisers to view an issue differently (with no real right/wrong or better/worse position).
The condition/terms of the loan are within the purview of the lender to negotiate (and one term can be the LTV, which directly influences the loan amount). These all are credit/credit-worthiness decisions which should be (and are) flexible.
The argument that the collateral pledged as security against loan default be a fixed-point value seems reasonable and makes good sense (to me). If the lender accepts the point-value as "credible" by an independent and unbiased source (us), then the terms/conditions of the loan (all of which can be argued are subjective and within significant control of the lender) is how a prudent lending decision using all the risk/credit management tools you cite is arrived at.

The lender determines the terms/conditions of the loan.
The market determines the collateral value used as a pledge against loan default.
There seems to be an intuitive check & balance built into that process.

 

[William Rightsell]

I fdind it ironic that they will accept a range from an AVM....I have seen some that give a range and then even throw in a standard deviation percent as a further disclaimer of accuracy.

They'll take it from a machine, but not a human.

todd

 

[Mr Rex]

If you don't "pretty up" the adjustments, you have a de facto range with the adjusted values of the comparables. I often add verbiage in private party appraisals and pre-foreclosure, and REO assignments that indicates a range based on some possibilities and probabilities. Those users tend to actually RTFR. For lenders on purchases and refis, not so much, they want the bottom line number.

 

[Michigan CG]

I think the argument could be made that; in analysis of the comparables a range is created between the number of comparables used, the end result is/could be - the "mid range value" of the comparables used.

I HATE it when appraisers do the "pick the middle of the range" thing. I much prefer an appraiser type a paragraph or two and do some qualitative analysis as to why they arrive at the lower end, the middle range or the higher age.

If you provided an opinion as a range, which is more representative of the appraisal process, then the U/W's would have to make a decision regarding what value to use from within the range. This would make underwriting more complicated. More 'complicated' just wont do.

This is a quality client (I don't do AMCs). The report was a challenging commercial report and no approach was rock solid (I did all three). So instead of picking a number I decided to let underwriting decide what they wanted to do with it. The range was about 10%.

How about a range for our fees,.....[/I][/B]

A range of fees is not uncommon in commercial appraising. Many quotes are a range.

......I will always use the market approach as the market value......

The market approach was the worst indicator in this case. I actually liked my cost approach a lot.

Isn't that why there's reconciliation? Its an opinion. I don't see
that a range is what most client's want. We are paid to pull the
trigger.

I disagree. We are paid to give an opinion, not necessarily pull a trigger. Some properties are very unique. By "pulling a trigger" we may be telling the client we are smarter than we actually are.

Value ranges will NEVER be accepted by the lenders.......

Never is a loooonnnngg word. This is a good lending client.

......My answer to why a range is not correct: The definition of market value is stated as the most probable price (singular). lol

And my answer to that is the most probable price is one number, somewhere in that range.

 

[jay trotta]

Tim
"HATE it when appraisers do the "pick the middle of the range" thing. I much prefer an appraiser type a paragraph or two and do some qualitative analysis as to why they arrive at the lower end, the middle range or the higher age."

This is a quality client (I don't do AMCs). The report was a challenging commercial report and no approach was rock solid (I did all three). "So instead of picking a number I decided to let underwriting decide what they wanted to do with it. The range was about 10%."

Excuse ME.......mista fast fingas

you did exactly what You HATE

"And my answer to that is the most probable price is one number, somewhere in that range" - Fire & Ice, you two fisted wordslueth...LOL

 

[Elliott]

So Tim, which end of the range is the lender going to base their loan on? Or are
they going to split the difference?

 

[redfish]

So Tim, which end of the range is the lender going to base their loan on? Or are
they going to split the difference?

Tim mentioned that he "liked" the cost approach so I am sure that was indicated in his reconciliation, that for this assignment that the cost approach is the most reliable indicator of value in his opinion but the results of the other 2 approaches and the subject property uniqueness warranted a range of value.