Question from potential private customer re reconciliation at sale price.

[Shawangunk RE]

Had an interesting call from a potential customer. She is looking to purchase a home in the area, and wanted to get an appraisal prior to submitting a bid. She stated that the last two homes she or relatives had purchased, the appraised value was reconciled at the exact sale price. She was curious as to why? I told her without knowledge of these properties or appraisals that I could not answer that, but 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. Then I saw a post from a realtor stating in her opinion, a lot of appraisers just try to reach the sale price to make their clients happy. That got me thinking, does the general public feel an appraisal is inaccurate if reconciled at the sale price??

 

[alebrewer]

There have been several studies done RE anchor bias. I think the St. Louis Fed published a paper on that a few years back. I tend to disagree just a bit that the reconciled value represents anchor bias. I personally believe the appraisal problem is slightly different WRT purchase assignments than for refinance assignments.

 

[CGinMN]

That got me thinking, does the general public feel an appraisal is inaccurate if reconciled at the sale price??

Yes, the general public believes the appraised value is inaccurate if reconciled at the sales price. It is also inaccurate when reconciled below the sale price. And above the sale price.

If the appraiser could not see the contract price, I think the most likely outcome is that the majority of appraisals that come in at contract would instead fall 0-3% below the contract. Nobody wants that.

 

[Shawangunk RE]

Yes, the general public believes the appraised value is inaccurate if reconciled at the sales price. It is also inaccurate when reconciled below the sale price. And above the sale price.

If the appraiser could not see the contract price, I think the most likely outcome is that the majority of appraisals that come in at contract would instead fall 0-3% below the contract. Nobody wants that.

LOL, very true.

 

[alebrewer]

From the studies, I believe the 'hitting the sales price' piece has more to do with solving the appraisal problem than with anchor bias. The metrics that (IMO) do point to bias are: (1) the fact that appraisals are 2-3 times more likely to equal or exceed the contract price than fall below it; (2) less variation around the sales price (i.e. purchase appraisals show less dispersion as measured against refinance appraisals).

 

[CGinMN]

Whatever is going on here in the red circle should theoretically be redistributed to the left-hand side of the X-axis so that it forms a normal bell curve, in effect mirroring the right-hand side of the X-axis.

 

[alebrewer]

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.

 

[J Grant]

From the studies, I believe the 'hitting the sales price' piece has more to do with solving the appraisal problem than with anchor bias. The metrics that (IMO) do point to bias are: (1) the fact that appraisals are 2-3 times more likely to equal or exceed the contract price than fall below it; (2) less variation around the sales price (i.e. purchase appraisals show less dispersion as measured against refinance appraisals).

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.

 

[Shawangunk RE]

From the studies, I believe the 'hitting the sales price' piece has more to do with solving the appraisal problem than with anchor bias. The metrics that (IMO) do point to bias are: (1) the fact that appraisals are 2-3 times more likely to equal or exceed the contract price than fall below it; (2) less variation around the sales price (i.e. purchase appraisals show less dispersion as measured against refinance appraisals).

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.

 

[alebrewer]

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.

This discussion has ZERO to do with AMC's and comingling of fees, J. Those kinds of rants are especially tedious when the topic doesn't even involve AMC's.