Please comment regarding the Contract Price being higher than the Appraised Value.

[J Grant]

:laugh:

"Appraised value differs from the contract value. Please see explanation starting on page 1 and ending on the last page for explanation"

:laugh:
Good one!

My wish list for a response: "Appraiser is not supposed to appraise to a predetermined value. A $100 fine for asking the question"

 

[George Hatch]

The lender should not have to ask. Part of the appraisal process is to analyze avaiable contracts ... if there is a difference, high or low, between the final opinion of value and the contract price it should be discussed in the reconciliation of value.

And the client ALWAYS deserves professionalism from the appraiser .. ALWAYS!!

Amen and Amen. The whole purpose of the requirement to analyze the pending sale is to answer the question of its reasonableness within the context of the definition of value being used in the appraisal. I *always* comment on this relationship in those assignments that include a pending sale price or a listing price or a really recent sale, regardless of whether that price is above, below or equal to my final value conclusion.

One more thing - appraisers could save a lot of the second guessing on comp selection if they were more explicit about the subject's location attributes and other dominant aspects of it's market segment. That includes laying out the criteria they used for filtering for "most recent, proximate, and similar". Waiting until the reconciliation of the Sales Comparison is way too late, IMO.

If you're appraising a subdivision home and your best comps are located in that subdivision, the time to start talking about that is in your neighborhood analysis where you're describing the composition of the neighborhood. If your market segment varies from your neighborhood then a separate section laying all that out is going to be very helpful in explaining that. It doesn't have to be long or extremely detailed - a quickie paragraph will do just fine.

That way when the borrower wants to throw a bunch of data out for "reconsideration" you can refer back to the criteria you previously laid out and point out the fact that these other data don't fit those criteria as well as do your direct comparables.

 

[Michigan CG]

The lender should not have to ask. Part of the appraisal process is to analyze avaiable contracts ... if there is a difference, high or low, between the final opinion of value and the contract price it should be discussed in the reconciliation of value...........

Most residential appraisers do not write a reconciliation of value.

 

[J Grant]

Most residential appraisers do not write a reconciliation of value.

How many residential appraisals have you personally reviewed to reach that conclusion? To say that most residential appraisers do not write a reconcilliation of value, you'd have had to review thousands of reports from across the country, in order to make that claim.

I have never turned in a residential report without a reconcilliation of value, and doubt that other res appraisers are turning in reports without one. I have reviewed hundreds of reports and while many were bad, they did have a reconcilliation of value.

Comments on any difference between a sales contract price of the subject should not be included in the reconcilliation of value section. The reconcilliation is where the appraiser reconciles the differences in value between the cost, income, and sales comparison approach.

If the appraiser does choose to comment on any difference between sales contract price and final opinion of value, the addendum or some other section of the report would be appropriate place to add comments.

USPAP certainly does not require any discussion regarding a difference between a contract price and value opinion, though some appraisers include it without being asked as a courtesy to the client . Analysis of the contract is asked for early on in the report relating to contract terms. The value opinion has not been developed at this stage of the report, why should an analysis of the contract include the the contract price, as it relates to the value opinion?Analysis of the subject contract related to terms and concessions in that section. There is a line where the price is recorded and then they ask to anaylize contract. The only time I mention contract price in the anaylsis line is if the contract price exceeds the listing price, I might comment on why.

 

[Eric C]

I am unaware of the motivations behind the buyer's desire negotiate the price they did, so I can not comment on why the purchase price is above Market Value.

I agree!!!! I write something similar to this because its the truth. In my opinion the contract price can be whatever the hell they want it to be. The motivation of the SUBJECT's seller or buyer has not effect on the subject's market value.

 

[AnonApprsr]

The lender should not have to ask. Part of the appraisal process is to analyze avaiable contracts ... if there is a difference, high or low, between the final opinion of value and the contract price it should be discussed in the reconciliation of value.

And the client ALWAYS deserves professionalism from the appraiser .. ALWAYS!!

Good thing they use me then, huh? Or were you insinuating something there. I wonder.

 

[AnonApprsr]

Most residential appraisers do not write a reconciliation of value.

Do you have nay other results from that time you saw most of the residential appraisals performed? I'd be interested in them. Unless you're just a residential appraiser bashing, AI "Designation Pushing" supporting commercial appraiser. Than than keep your "study" to yourself.

 

[rescom]

Analyzing the subject contract pertains to explanation of matters such as if prevailing terms are present and if there are any concessions or terms. It does not mean the contract price is a value influence that needs to be discussed, especially in a value reconcilliation . An appraiser is not supposed to appraise to a perdetermined value, therefore discussing why there is a variance between contract price and value opinion might be construed as such.

BINGO!!! Very well said.

I am going to use this in my reports.

 

[J Grant]

BINGO!!! Very well said.

I am going to use this in my reports.

Thanks...it is well said (since I wrote it lol) , but I did not intend it for use in a report ( though you can if use it you want). The statment was written about why one should not have to comment on why a sales contract price is different..but writing this in a report is kind of offensive to a client.

I personally write no explanation in my reports when VO and contract price differ, which says the same thing without having to sate it...that I do not appraise to a predertmined value, therefore there is no reason to explain why my value differs from a contract price.

Appraisers who volunatarily comment on why their values are different from sales prices, it could be construed that they were trying to appraise to a predetermined value ( the sales price), and missed it, and therefore are explaining why they missed the target sales price. It could be construed that way by a reviewer or attorney, so why do it The lenders are professionals and know darn well why a value opinion is below a sales price, asking for an explanation is another form of intimidation of appraisers.

Would a lender ask a credit bureau, after they ran a credit score and the credit report came back at 580, why the credit score wasn't 630, the target score? No.

But here we have appraisers volunteering to put an explanation in the report about why their VO was different without a lender even asking. This sets a precedent, for lenders to start expecting an explantion on all reports.

If I were asked to comment, I would state something like, "At client request, appraiser is addressing why the value opinion differs from the sales contract price. " There were several good variations given on the posts... I'd keep it as brief as possible.

 

[George Hatch]

I consider a pending contract for sale to be a piece of market data, even if it's for the subject. Inasmuch as I only sometimes appraise my subject at a higher or lower value I fail to see why I wouldn't want to analyze and compare that information against my other direct comparables.

It's a question that most readers would have and there's nothing wrong with them asking it. I think ignoring the question outright but just "coincidentally" coming to the same value conclusion looks a lot more dodgey than simply dealing with the issue straight up.

"A reasonable value conclusion as a range is between $200k - $210k. The subject's pending sale price at $210,000 falls within that range so I consider it to be a reasonable expression of the concept of Market Value as defined."

For most appraisers, a tie goes to the runner. I don't see anything wrong with acknowledging that. Especially in review work.