Overpriced properties and escalation clauses

[Ronald Hauser]

J Grant - I agree with you. I recently had a Realtor say to me that she did not know what was wrong with us appraisers and why we just cannot hit values.

 

[George Hatch]

Yeah, they're not going to be throwing out that line anymore about "Appraisals are useless. 95% of all appraisals hit value anyway" .


Get rid of the AMCs and go to direct engagement and the agents will *really* be hating life.


The difference between lenders doing deals on overpriced sales back then vs now is that back then they didn't know the property was overpriced. Now they do. More often, anyway. Now if they want to make that risky deal they have to take responsibility for that decision. The lenders could offer mortgages over MV if they really wanted to. That they won't is on them. Not us.

 

[J Grant]

J Grant - I agree with you. I recently had a Realtor say to me that she did not know what was wrong with us appraisers and why we just cannot hit values.

Good for you for not being "one of them"! There are a fair share of value hitters out there, and unless they all jump off a cliff (fantasy), they contribute to an environment that makes the appraiser's job 1000 times harder than needs to be.

.

 

[sputnam]

The market will provide. What you need is usually there. Yeah, it's not always simple or easy to extract what you need....but no one promised it would be easy every time.

 

[George Hatch]

One more thing - once you recognize that your opinion of value isn't going to support a contract price you need to get aggressive and cover all your bases. In addition to really proving your own opinion you also need to disprove the contract price as being a reasonable expression of MV. You need to slam the door on it so they can't open it again. If you can't positively disprove it then you need to reconsider how strong your analysis is and how committed you are to your own opinion.

Express value as a reasonable range in your reconciliation prior to concluding to the one point; and if the contract is outside that reasonable range then quantify the difference and comment on how far out it is. In a hot market if a lender decided (for example) 3% over was an acceptable risk then that's great as long as it's them making that decision out in the open and not you making that decision on the down-low. The trick is to give them the info it takes to make an informed decision without actually crossing the line and participating in the decision yourself.

 

[Ronald Hauser]

J Grant - That Realtor was upset with me because I was $35,000 lower than the contract price. She missed the market totally. She sent 4 comps to the loan officer which was sent to me by the AMC. 3 were about 1,000 sqft larger than subject and had full finished basements and the other was 400 sqft larger and backed to an open space. The subject had a partial basement and backed to residential properties. After the Realtor stopped calling me I got a call from the buyer asking if I could send the listing Realtor a copy of page 6 because they were not going to give him back his earnest money unless they had proof that the appraisal was low and he did not feel the Realtor or seller needed a full copy of my report.

 

[J Grant]

Ronald, that is a scary story! Sounds like Dragon Lady (or Dragon Guy) Realtor.

 

[Cob]

****Agents argue with me that the value is what a prospective buyer and seller have negotiated the sale price to be, regardless of what comparable sales show. "It is what somebody is willing to pay for it" to quote a recent conversation. On the other hand, a lender will typically require closed comparable sales that bracket the subject's features and sale price from within the last 6 months. USPAP has it's own very clear definition.****

When someone says it's what "somebody is willing to pay for it" I always remind them that may be true if they are paying all cash or have cash to make up the difference. In markets like yours, if there are multiple offers, shortage of inventory, etc., then the buyers better have CASH ready, END OF STORY, if their buyers are expecting the bank to finance over what it's worth, then they shouldn't be putting in offers on properties.

The other way I explain it to them is like this. When you see a car auction on TV or when you go to the courthouse and people bid on houses, in both cases if people pay more than what it's worth because, "that's what they are willing to pay", the BIG difference is that they pay for it when they leave. They don't hand over a letter from a lender stating they are going to get financed. I also ask them to email me the 3 or 4 best CLOSED COMPS over the past 6 months that they think are the most similar and I remind them COMPS not just SALES.

 

[George Hatch]

Demand /= Effective Demand

 

[Ronald Hauser]

****When someone says it's what "somebody is willing to pay for it" I always remind them that may be true if they are paying all cash or have cash to make up the difference.

I said something similar to a Realtor recently and she told me I was crazy to think that way.