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

[AnonApprsr]

The last 3 purchase jobs i did the P&S wasn't ready when I finished the appraisal. I knew nothing of the sale price. The last one there was only an offer to purchase, which "may" be accepted in 7 days. I will eventually get the P&S after the loan has closed, which is pretty unbelievable but ok by me I guess.

 

[J Grant]

While I rarely address why my VO differs from sales contract price when that is the case, I will often talk about the sales comps I did not use in the report and why. Particulary if there were higher price sales. Because that is the logical question in many of the users of the appraisal, were there other higher sales that could have been used to support the contract price?

I might write something like this: "There were several higher priced sales in subject subdivision in the past six months of similar size homes. However, the appraiser did not use these sales, as they were newer/more highly upgraded/had water views (whatever the reasons). The appraiser did use one higher priced sale in the report, and that sale needed adjustments exceeding guidelines due to superior year built and upgrades. The comps 1, 2 and 3 , given the most weight , are most equivalent to the subject in year built and upgrades/finish, and required the least adjustments"

If the appraiser uses the best comps and clearly explains how they arrived at value, then that addresses why the sales contract price is different.

The appraiser is supposed to be a neutral party, not hired to either support, or "kill: a sales contract price. They are supposed to analyze the contract, re the terms of sale, so users of appraisal can see if terms of sale influenced contract price. After that, the appraiser develops their opinion of value.

IF an appraiser chooses to state directly in a report why their VO differs (or matches) the contract price, so be it. It starts to raise a red flag imo on why the appraiser is so concerned with the contract price, but that is my take on it. Putting the statement in the reconcilliation imo is the least appropriate place, because the reconcilliation is about explaining how the appraiser reconcilled the approaches to value, and consideration of a sales contract price is not supposed to be an approach to value.

Where do most appraisers put a statement re diff between VO and contract price? I am rarely asked to provide it, if I am asked, I put it on the addendum.

 

[George Hatch]

The problem here is that "is this contract price supported in the market?" is a reasonable question that most anyone would ask when there's a contract price afoot. Some appraisers are saying that they don't want to directly address that question in an assertive manner and want to use their final value conclusion stand alone as an implicit indication that the contract price is "wrong".

From my perspective I think the passive avoidance followed by the aggressive "not my job" when they come back to ask the question after the fact is not only unnecessary, it's counterproductive. It won't make that reader any more confident in our credibility and it won't resolve the question.

IMO we are not here to just provide a number on the bottom line; and sometimes that number isn't even the most important piece of info in our reports. It leaves the client on the hook for expanding on that number when the borrower asks the question. What are they supposed to do? Shrug their shoulders and say they don't know?

What would we do if the stated GLA is much larger than our measured GLA? Avoid the inevitable question or deal with it directly? It just about goes without saying that we deal with it directly and without apology or intimidation because we're professionals and we have no vested interest in someone else's mischaracterizations.

 

[George Hatch]

I compare my sales contract to the direct comps in the Sales Comparison and reiterate that conclusion as part of my final reconciliation. It is not a tangental after-the-fact question in those assignments - it's one of, if not the primary questions.

 

[Lisle]

Contract price is 3% above estimated value of this repot. As the appraisers opinion of value is typically +/-0.5% accurate, the buyer overpaid.

 

[J Grant]

George, what specific comments do you make referencing sales contract price in your reconciliation , and do you place your comments in the reconciliation section of the URAR form?

 

[J Grant]

The problem here is that "is this contract price supported in the market?"

This question is supposed to be adderssed by the client receiving the appraisal report with the value opinion. That answers the question clear as can be. If the VO is under contract price, clearly the appraiser came to the conclusion the contract price was not supported.

is a reasonable question that most anyone would ask when there's a contract price afoot.

Again, the question is answered with the appraisal.

Some appraisers are saying that they don't want to directly address that question in an assertive manner and want to use their final value conclusion stand alone as an implicit indication that the contract price is "wrong".

The contract price is not "wrong", the contract price is not the same as the MV the appraiser derived from their best research and comps. The appraiser does not tell anyone what to pay for a house, or that a contract price is "wrong. If I come up with a MV opinion of 220k, and you want to pay 230k per sales contract, pay the other 10k in cash or get the seller to take a note for difference, and go ahead and pay 230k.


From my perspective I think the passive avoidance followed by the aggressive "not my job" when they come back to ask the question after the fact is not only unnecessary, it's counterproductive. It won't make that reader any more confident in our credibility and it won't resolve the question.

The appraiser spends a day or more and writes up a multi page report detailing his/her reasoning, how is that "passive avoidance?" How much clearer can you get then providing a well researched report that the appraiser's opinion of value is not the same as the contract price? The appraiser did their job, they delivered an appraisal report with a MV opinion. And no, it is not the appraiser's job to start playing realtor or advisor to the buyer after they finish their report. The loan officer is a professional, they clearly know when the MV in an appraisal is different or below a contract price what that means, and it is their job to call the borrower and tell them.

The borrower has recourse to submit more comps on their own or through a realtor, and that is the time to address their concerns, if any re contract price. Some borrowers are relieved to know that they overpaid and choose to walk away or renogiate the price to the amount of appraised value.


IMO we are not here to just provide a number on the bottom line;

Yes we are!

and sometimes that number isn't even the most important piece of info in our reports.

????

It leaves the client on the hook for expanding on that number when the borrower asks the question. What are they supposed to do? Shrug their shoulders and say they don't know?

The client yes, is supposed to be a professional, and state that their experienced local appraiser developed a report that came up with a MV opinion that does not support the contract price, and the borrower is welcome to a copy of the report, and has the option to submit more comps and contest the value, or can cancel the deal if it is subject to financing, or can put more cash down, or can renegotiate the price. THAT is what a lender is supposed to tell the borrower. IF they say "they don't know", and have no idea how to talk to a borrower, then they are not a professional and shoud quit or be fired.

What would we do if the stated GLA is much larger than our measured GLA? Avoid the inevitable question or deal with it directly? It just about goes without saying that we deal with it directly and without apology or intimidation because we're professionals and we have no vested interest in someone else's mischaracterizations.

a GLA is not the same example , not sure how it applies. But yes, data discrepency that affects value needs to be explained or addressed.

 

[hastalavista]

I predict this issue will be addressed (soon) in an FAQ.
The question,
"Can a client request the appraiser to comment on the whys/wherefores of a difference in value between a purchase contract and the OMV when the assignment is for said purchase and the purchase contract was analyzed as part of the assignment?"
Will be answered,
"Yes, such a request is legitimate, appropriate, and consistent with the intended use and SOW of the assignment."
Personally (and professionally), I don't think the client should need to even ask for it. I think it is a reasonable expectation for the client to have without asking (given the intended use of the report).


I definitely agree with George that the OMV may not be the most important piece of information within our reports. For a fact, it is inconsequential when the property does not meet the client's lending standards (physical condition, legality, etc.). The opinion of market value is only of consequence to the lending decision if the property qualifies for the loan to begin with.
The questions the appraisal answers for the client are:
A. What is the property like.
B. What is the opinion of market value.

Those questions are asked and answered sequentially, and if the property doesn't qualify ("A") then the value doesn't matter ("B") as far as the lending decision goes.


One advantage that any competent appraiser has over any automated valuation model (no matter how sophisticated it may be) is the ability to answer such a question (OMV vs. Contract Price difference) in a meaningful way that assists the client in its decision. Yet, there is a large contingent that doesn't think addressing such a question is the appraiser's responsibility.
Who can blame a client for seeking out another valaution source (cheaper and faster, and in many cases, just as reliable for the decision to be made) if appraisers do not want to provide a significant piece of information that they are in the position to provide but refuse to do so on the grounds that they shouldn't have to?
Especially when it takes all of 5-minutes and maybe 5-sentences. m2:

 

[J Grant]

I predict this issue will be addressed (soon) in an FAQ.
The question,
"Can a client request the appraiser to comment on the whys/wherefores of a difference in value between a purchase contract and the OMV when the assignment is for said purchase and the purchase contract was analyzed as part of the assignment?"
Will be answered,
"Yes, such a request is legitimate, appropriate, and consistent with the intended use and SOW of the assignment."

Fine. They have a right to ask...few actually do, most are professional enough to know how to read an appraisal, and a good appraisal answers the question by supporting the MV very clearly.

Personally (and professionally), I don't think the client should need to even ask for it. I think it is a reasonable expectation for the client to have without asking (given the intended use of the report).

That is your opinion, many feel differently.

I definitely agree with George that the OMV may not be the most important piece of information within our reports. For a fact, it is inconsequential when the property does not meet the client's lending standards (physical condition, legality, etc.). The opinion of market value is only of consequence to the lending decision if the property qualifies for the loan to begin with.
The questions the appraisal answers for the client are:
A. What is the property like.
B. What is the opinion of market value.

Those questions are asked and answered sequentially, and if the property doesn't qualify ("A") then the value doesn't matter ("B") as far as the lending decision goes.

No problem there. But, unless you are niave, the same clients who pressure appraisers for value explantion re contracts are the same ones who pressure appraisers to fudge condition and zoning etc (the A, what is the property like query). I suppose next you think it will be a good idea for an appraiser to volunatarily provide an explanation why the subject is unacceptable for lending purposes re zoning or other physical issues, apart from the information the appraiser already provided on the report?

One advantage that any competent appraiser has over any automated valuation model (no matter how sophisticated it may be) is the ability to answer such a question (OMV vs. Contract Price difference) in a meaningful way that assists the client in its decision. Yet, there is a large contingent that doesn't think addressing such a question is the appraiser's responsibility.
Who can blame a client for seeking out another valaution source (cheaper and faster, and in many cases, just as reliable for the decision to be made) if appraisers do not want to provide a significant piece of information that they are in the position to provide but refuse to do so on the grounds that they shouldn't have to?

???? They are seeking alternate sources of valuation that DON'T exlpain why a contract price and OMV is different, because an appraiser does not do it either?

Lack of explanation about a contract price is not why lenders seek alt sources of valuation. In fact, most or even all, alt sources of valuation are used for non purchase purposes, such as refi or equity line of credit or when a lender sells a portfolio of loans. They still use appraisers for almost every purchase, even those below de minimus.

A client's problem when an appraisal does not come in at contract price is not the lack of a few sentence or paragraph explanation of why, (they know why, unless they are morons).

The problem the client has is that appraisal did not make the sale contract price and thus they may lose a deal or loan comission. That is why very few clients ask for an explanation, they know why it didn't make contract price from reading the report. Their problem now is they are losing a commission or bonus, they could care less about your explanation. IF it is asked for, the corporate head office or an AMC made it a policy .
Especially when it takes all of 5-minutes and maybe 5-sentences. m2:

IF they ask, I provide it.

 

[hastalavista]

JGrant:

But, unless you are niave, the same clients who pressure appraisers for value explantion re contracts are the same ones who pressure appraisers to fudge condition and zoning etc (the A, what is the property like query).

I suggest you get a better quality client. But maybe that's my naiveté speaking?

My clients do not pressure me to change the condition rating. They want to know what the property is like so they can determine if it qualifies based on their lending standards. Once it gets past that test, then they consider the value to determine a LTV calculation.

A client's problem when an appraisal does not come in at contract price is not the lack of a few sentence or paragraph explanation of why, (they know why, unless they are morons).

The problem the client has is that appraisal did not make the sale contract price and thus they may lose a deal or loan comission. That is why very few clients ask for an explanation, they know why it didn't make contract price from reading the report. Their problem now is they are losing a commission or bonus, they could care less about your explanation. IF it is asked for, the corporate head office or an AMC made it a policy .

(my bold)

You definitely have issues with your clients.
The feedback I get from my clients is that they appreciate my comments/explanation (and, yes, I do get that feedback).
Again, you should try to upgrade your clientèle. It might improve your perspective.