Question from potential private customer re reconciliation at sale price.

[CGinMN]

This is what the distribution would look like if we didn't have the contract price.

If the contract sales price were not disclosed, I'm sure that would be the case. If the data reflected a normal distribution, though, we'd have to have a trigger in place to override minor variances from the sales price - in which case, we'd effectively be doing the same thing we already are.

Borrower would just have to come up with the difference, price would need to be adjusted, or change the LTV. I

 

[alebrewer]

In my experience, if a property is selling above market value, its pretty apparent as soon as the comp search is underway. There is not an appraiser on this earth who can confidently appraise a property to within $5000 or so. I have appraised below sale price lots of times. The phone calls and emails from client, borrower and most of all RE agents are always fun after that lol.

I've no doubt there is a level of anchor bias that can be laid at the feet of 'pressure to hit a value'. I've long contended, though, that the appraisal problem for a purchase appraisal (given that we're afforded the PC) is: is the contract price a reasonable estimate of market value? IMO - purchase appraisals would work fine if the appraiser didn't even report a value - just a 'yes' or 'now' WRT the question.

That opposed to refinance appraisals, where the question is: "What is the subject's market value?"

 

[Shawangunk RE]

Its not aobut anchor bias; its about the fact that there is no firewall with the AMC's and appraisers fear their work stopping if they come in below SC price on more than rare occasion. Nearly all of us have experienced work disappearing after coming in low.

The same can be true for direct lenders, though the better lender clients want MV and won't punish an appraiser for coming in"low." Coming in low is a ridiculous word - if an MV is well-supported, then the purchase price was high.

A sale contract is a value indicator and should be considered in a purchase assignment.Whether it is a relevant value indicator is what the appraisal reveals. A sale contract is the variable that is not present in a refinance assignment. The MV purpose of the assignment is the same.

Your last line is the correct answer. The sale price is a value indicator, at least to the buyer, whether relevant or not is our job.

 

[alebrewer]

This is what the distribution would look like if we didn't have the contract price.

View attachment 98920

Borrower would just have to come up with the difference, price would need to be adjusted, or change the LTV. I

That may be right - or there may be a lever that allows underwriters to override minor variances between appraised value and contract price - much like they can override repair conditions. I just don't believe the market participants would be willing to allow a loan to die over a few hundred bucks. Its a moot discussion, though, as appraisers ARE afforded the PC - and I believe the expectation of some level of anchor bias is at least partially the reason the appraisers get the PC.

 

[TerryRohrer]

I've no doubt there is a level of anchor bias that can be laid at the feet of 'pressure to hit a value'. I've long contended, though, that the appraisal problem for a purchase appraisal (given that we're afforded the PC) is: is the contract price a reasonable estimate of market value? IMO - purchase appraisals would work fine if the appraiser didn't even report a value - just a 'yes' or 'now' WRT the question.

That opposed to refinance appraisals, where the question is: "What is the subject's market value?"

Except that standards, assumptions, certifications, and the actual question being asked are identical in both circumstances. The resolution should be outside the appraisal process. That it isn't leads us to where we are today...those asking the question are knowingly lying about what they want and appraisers seeking approval (aka, future business) are lying about their conclusions.

 

[alebrewer]

Except that standards, assumptions, certifications, and the actual question being asked are identical in both circumstances. The resolution should be outside the appraisal process. That it isn't leads us to where we are today...those asking the question are knowingly lying about what they want and appraisers seeking approval (aka, future business) are lying about their conclusions.

No doubt some appraisers are more egregious than others WRT hitting contract prices. I don't believe, however, that its anchor bias when an adjusted sales range is between ~ $190,000 and $215,000 with contract at $210k - to conclude to $210k. At least not in the sense that the bias produces less than credible results. Any number within that range should be just as supportable as any other number (unless you have a strong median or modal tendency), so really what you're doing is saying, 'Yes - the contract price of $210k is supportable.'

 

[CGinMN]

When "make it the appraiser's problem" is one of any number of possible solutions, it will always be the solution.

 

[TerryRohrer]

No doubt some appraisers are more egregious than others WRT hitting contract prices. I don't believe, however, that its anchor bias when an adjusted sales range is between ~ $190,000 and $215,000 with contract at $210k - to conclude to $210k. At least not in the sense that the bias produces less than credible results. Any number within that range should be just as supportable as any other number (unless you have a strong median or modal tendency), so really what you're doing is saying, 'Yes - the contract price of $210k is supportable.'

Once that is understood, those so inclined ensure that the $215k adjusted sale is always included, whether comparable or not. Once everyone is simply looking for "support within the range", no one looks for whether or not the range is supported. As long as users of appraisals are allowed to select appraisers based on their willingness to hit the target, and as long as users of appraisals publicly convey the ways that they will accept as a means to accomplish that outside the data (without support, of all things), the problem will continue. If value ranges replace point values, the ranges will be adjusted.

 

[Surf Cat]

did tell her that if I was doing an appraisal and the comps adjusted to a tight spread, and the sale price fell in the middle, why not reconcile at the sale price? I reiterated the definition for market value.

This is basically what I do. I comment in my reconciliation that the adjusted sales of the comparables indicate the purchase price is supported...... and come in at the purchase price LOL. This has upset people for years. I have when it's glaringly obvious, opined at a higher value than the contract price.

What's more upsetting however, is when you reconcile below the purchase price and state that the most similar comparable sales to that of the subject, appear not to support the purchase price. Back in the mortgage broker days or with the AMC's..... doesn't matter, everyone's upset.

I always thought the appraised value should be a range of the adjusted sales, not an "exact" number and let the lender make the final decision. No one's that good...

 

[alebrewer]

Once that is understood, those so inclined ensure that the $215k adjusted sale is always included, whether comparable or not. Once everyone is simply looking for "support within the range", no one looks for whether or not the range is supported. As long as users of appraisals are allowed to select appraisers based on their willingness to hit the target, and as long as users of appraisals publicly convey the ways that they will accept as a means to accomplish that outside the data (without support, of all things), the problem will continue. If value ranges replace point values, the ranges will be adjusted.

I don't think I'd say its a universal thing, but I'm absolutely sure some appraisers fall into this category - hence the reason users of our services believe they can create a model that works better than we do. As an aside - just got back two appraisals on the same property - one is at $750k and the other is at $950k. I don't blame the appraisers for being so far apart - I blame an industry that has rewarded mediocrity for several decades.