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

[JamesRockford]

... you were the one touting how someone needed to take a USPAP class ... I merely pointed out its not always available nor is it mandatory. Your reference above is well taken but further supports my position.

My point was that the appraiser needs to understand if a contract is available the appraiser is REQUIRED by USPAP to analyze it and if the contract is not available the appraiser is REQUIRED by USPAP to comment on the steps taken to attempt to get the contract.

Personally speaking ONLY, I never accept an appraisal assignment for a purchase transactio until a signed and dated contract is provided for review.

 

[George Hatch]

There are people who believe the requirements for reviewing sales contracts and sales histories should be struck from USPAP due to the "target" factor.

 

[J Grant]

Since it is a USPAP req and written in the forms, the powers that be want that contract price as a big, prominent target ( while they also state do not apprise to a predeetermined value and will go after your license if that turns out to be the case)

So yes, the presence of a contract price and the req to analyze the contract makes it much tougher for appraisers , but I suppose that it the point. With no contract price, it would be a value opinion with no stated price to deal with. I would bet that if contract prices were taken away from the appraiser, there would be a much wider variance from the contract price then we see on most reports.

Whether that would be good or not, who knows. It might lead realtors and owners to get an appraisal on the home before accepting offers.

 

[J Grant]

For those who state the contract price is just another data point....Like how many married couples there are is a statistical data point, till you are getting married, and then it becomes very personal.

A data point such as a closed sale price, is neutral information, with no pressure or client expectation involved.

A subject contract price is a very loaded piece of information for the appraiser to deal with, and everybody knows it, including the appraiser.

It is of more concern to those appraisers who have pleasing the client as a priority , but it is of concern to all appraisers, even those determined not to let it influence their value opinion.

The AMC's via HVCC mitigated the pressure on appraisers to a degree, but not entirely, with realtors and owners allowed to submit comps for rebuttal. But, more lenders do not want to make over valued loans , so there is a bit more respect for appraisers bringing in real credible values no matter what the contract price is. Most appraisers are not so hard line that if their value opinion is 199k and a contract is 200k that they won't find it in a value range to state 200k as a value opinion. But the problem is those appraisers, and there are still far too many, who work backwards from the contract price and shape comp selection around it.

 

[Mike Kennedy]

"The Source for the Definition of Market Value utilized herein was published by Federal Regulatory Agencies pursuant to Title XI of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 between July 5, 1990 and August 24, 1990, by the Federal Reserve System (FRS), National Credit Union Administration (NCUA), Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the Office of Comptroller of the Currency (OCC). This definition is also referenced in regulations jointly published by the OCC, OTS, RFS, and FDIC on June 7th 1994, and in the interagency Appraisal and Evaluation Guidelines, dated October 27, 1994. To whit

“Market Value” is the value Appraisers are required to use when appraising property for a Federally Regulated Transaction, unless clear statements to the contrary are used. The definition is included in every FNMA appraisal

“The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
(1) buyer and seller are typically motivated;
(2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest;
(3) a reasonable time is allowed for exposure in the open market;

(4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and[FONT=&quot] the price represents the normal considerationfor the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.”


[/FONT]

 

[AnonApprsr]

Not reviewing the contract when it's available is retarded Mike, we've discussed this before your your position is held based on the assumption of appraisers being idiots and pliable in the nature of salt water taffy warmed up.

 

[Joyce Potts]

Ever wonder why "they" put the "responsibility" of finding true cash equivlency, yet don't us the "authority" or means to truly do so? If not recording the HUD-1's is reasonable, why not mandate their review when those properties are used as comps?

 

[Michigan CG]

How many residential appraisals have you personally reviewed to reach that conclusion?.....

A lot......but let me ask you, how many paragraphs does your reconciliation of value take? Do you fit it in the little box or do you have a separate area where you write two to three or even four paragraphs in your reconciliation?

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......

Exactly. The last time I checked, buyers and sellers were market participants and the4ir actions should also be analyzed.

I don't think the reconcilliation of value is the appropriate place to comment on any difference between contract price and value opinion, if the appraiser comments at all......

If that is not the appropriate place then where is it appropriate? Tow parties got together on a price. Why did they do that? It needs to be explained somewhere. If not in reconciliation, then where?

.........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..............

Please...seriously......these people are also market participants. Maybe appraisers should do a little research and find out why the parties agreed to the price. Who knows, you might learn something.

Maybe they saw $20,000 in the finished basement when skippy sees only $3,000 for a finished basement from his "list".

From the recent report where they asked me the stupid question...

Regarding the fact that the opinion of value contained in this report is lower than the contracted purchase price.. 32 transactions that closed over the past 12 months were considered and this appraiser has utilized the most recent, most similar, closest comparable properties in determining value.

My opinion of market value is the most probable price the subject should sell for and is consistent with the Definition of Market Value.

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.

And you were good until you got to the bold part of your response. What were the motivations of the buyer and what value did the seller see? Four phone calls might solve the problem and you might gain access into the minds of the buyer and seller.

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

Sorry, that does not cut it. How did you narratively explain it? What did the buyer see? What is making the buyer offer that price? It could be market related or it may not be.

Where are the Standard 1-4 requirements met in some of these cases?

 

[Michigan CG]

I consider a pending contract for sale to be a piece of market data, even if it's for the subject.

Well that only makes sense. Quit that please.

I think we should appraise without a contract. Who cares? Appraiser should just give an opinion of value.......

Gregory, to a point I agree with you. In the commercial world and the litigation world there are no numbers "to hit", just appraise it. I have appraised $50,000,000 properties with no number to hit.

In residential appraising there are no more refi's....everything (in my area) is purchase. The buyer and seller and their justification of the price are part of the market and they must be considered. These people are market participants.

USPAP Standard 1-4 is more pertinent that ever although most ignore it.

 

[Michigan CG]

.....Personally speaking ONLY, I never accept an appraisal assignment for a purchase transactio until a signed and dated contract is provided for review.

You can't appraise a property without a contract? Many appraisals are performed without sales contracts.

There is a state board member in Iowa who I highly respect to this day that had a client that would never give him a contract. It was their agreement. The client wanted to know his opinion without the contract.

Client condition.......appraise and move on.

However, if there is a contract provided then the appraiser needs to consider it and research it.........Standard 1-4 again.