Question Regarding Page 1 Of URAR Contract Section. Please Help!

[Terrel L. Shields]

you are provided the contract and amendments SOLELY so that you can determine the terms of the transaction and whether any extraordinary circumstances (transfers of personal property, owner 2nd loan, concessions, atypical financing terms etc) so that you may analyze their impact/potential impact. If having the contract makes you weary, perhaps you should perform your analysis first....then analyze the contract last.

citation please - what appraisal book teaches that? ...the contract is another piece of the puzzle that gives you some idea of the value when you otherwise see it is falling into line with other indicators. You are dealing with a range of value when appraising. The one and only thing a MV estimate is NOT is a single point value although we slap one on the piece of paper. Implied is that the value lies within a narrow range of that value. If overly broad we have an obligation to report a range of value...ever see an appraiser do one on a form report? Me neither.

their change should have no bearing on a credibly developed opinion

That part is true. After the report is done, you are done with the valuation based on the information you had as of the date of the report. But to ignore the existing contract is to throw away a piece of the puzzle. Because if you opine something different from the contract price, but oh so close that the deal is certain to close at that contract price then who is wrong? The contract or you? I say it is YOU...but assume you hold your ground and 2 months later you use that sale as a comp. You will then adjust the sale price down for not being "Market Value", right? Really? Did I say something wrong? Obviously if you use the contract price later, you are saying your own estimate is flawed.

 

[Kitarkus]

citation please - what appraisal book teaches that? ...the contract is another piece of the puzzle that gives you some idea of the value when you otherwise see it is falling into line with other indicators. You are dealing with a range of value when appraising. The one and only thing a MV estimate is NOT is a single point value although we slap one on the piece of paper. Implied is that the value lies within a narrow range of that value. If overly broad we have an obligation to report a range of value...ever see an appraiser do one on a form report? Me neither.

That part is true. After the report is done, you are done with the valuation based on the information you had as of the date of the report. But to ignore the existing contract is to throw away a piece of the puzzle. Because if you opine something different from the contract price, but oh so close that the deal is certain to close at that contract price then who is wrong? The contract or you? I say it is YOU...but assume you hold your ground and 2 months later you use that sale as a comp. You will then adjust the sale price down for not being "Market Value", right? Really? Did I say something wrong? Obviously if you use the contract price later, you are saying your own estimate is flawed.

I'm not sure I follow you. The Contract is certainly a "piece of the puzzle"....but referring to the OP....the Contract is not weighted in the final reconciliation of value. The Contract is not a VALUE INDICATOR which would be suitable for use in a final reconciliation. If the Contract were a value indicator....we would live in a perfect utopia of honest people where all transactions were perfectly above board. Lenders require appraisals for a reason. In my market area today..we have low inventory and limited recent sales. The most recent settled sales are not always justifying the buying frenzy among the few existing listings. This doesn't mean that I can weight the Contract....in a transaction where a few people at this single point in time are bidding up a property to new levels. I rely on settled sales, cost approach, or income approach...no more and no less.

We don't live in a utopia. Contracts or predominantly arm's length, however, short market fluctuations (for example during short periods of very low inventory) are smoothed over by a requirement that the sales comparison approach utilizes SETTLED SALES for reconciliation. Sure...if you can prove absolutely that the market is increasing...a time adjustment can be utilized. Most lenders would like to see your opinion of market value bracketed AT LEAST by your adjusted sales prices....but they also want to see the bracket among unadjusted sales prices.

I maintain my opinion. The Contract is not provided to us so that we may weight the purchase price in our final reconciliation of value. In fact...we cannot do this in any way/shape/form. Most of my work is lender work....your work types may vary.

 

[Terrel L. Shields]

The most recent settled sales are not always justifying the buying frenzy among the few existing listings.

too true, but I never completely dismiss a contract unless I am confident it is bogus (I ran into that a few years ago because I didn't trust the agent. She provided a "sales contract" well above the price her son had just gotten for one of his new construction houses (he was partnered with his mother in the construction co. after the death of his dad, a man I trusted). I smelled a rat, and checking I found the man who signed the contract was an employee of another son who was a brick layer. I dismissed it and she howled to the moon (and lender) until I told the lender to buzz off. I wasn't changing it. Sure enough a year later that house sold for less than her "contract price" and to someone else, not the guy who signed the contract. This was FHA financing and so a genuine fraud.

The frenzy is made worse in those states like yours that are non-disclosure. In a deed stamp state, the buyers often consult public records to find out what the house most recently sold for and what other houses were selling for. I see a lot more variation in prices in MO than I do in OK or AR.

If I deem a contract valid, it does impact the direction my value is going. Certainly I want to look very closely if my value is coming in much higher or lower than the contract.

 

[Kitarkus]

too true, but I never completely dismiss a contract unless I am confident it is bogus (I ran into that a few years ago because I didn't trust the agent. She provided a "sales contract" well above the price her son had just gotten for one of his new construction houses (he was partnered with his mother in the construction co. after the death of his dad, a man I trusted). I smelled a rat, and checking I found the man who signed the contract was an employee of another son who was a brick layer. I dismissed it and she howled to the moon (and lender) until I told the lender to buzz off. I wasn't changing it. Sure enough a year later that house sold for less than her "contract price" and to someone else, not the guy who signed the contract. This was FHA financing and so a genuine fraud.

The frenzy is made worse in those states like yours that are non-disclosure. In a deed stamp state, the buyers often consult public records to find out what the house most recently sold for and what other houses were selling for. I see a lot more variation in prices in MO than I do in OK or AR.

If I deem a contract valid, it does impact the direction my value is going. Certainly I want to look very closely if my value is coming in much higher or lower than the contract.

The lack of disclosure is a big deal here...and a real p in the a. One of my Kansas counties discloses (I pay them $500 per year for the pleasure of their data)....Missouri none disclose.

So let me ask you hypothetically...Scenario example: Let's say you have a typical Purchase Assignment in a suburban area which exhibits a moderate degree of continuity. In this area you have estimated that you have superb comparable sales when compared to your Subject property...these comps settled in the 3-10 month period...none sooner. Your Subject is selling at $1,000 higher than the highest relevant sale in this market area and you are tasked to appraise for the purchase transaction. Your highest comparable sale price is $1K less than your Subject....and they are virtually identical....except your Subject is a non walkout finished basement and your comparable #1 is a walkout finished basement. The Subject and comparable properties are superior houses in this market area and they are reflective of settled sales at the very top of the range of settled sales in this market area during the prior year.

At face value...it would seem...your Subject will adjust to a few thousand dollars +/- LESS than your #1 comp....and thus a few thousand +/- less than the Purchase Price per the Contract. At face value...an upward time adjustment could be difficult to substantiate given the lack of relevant sales during the 0-3 month period....and if an upward time adjustment could be substantiated....your Subject would be a 'market making' high sale price. Your unadjusted sales prices do not bracket the purchase price. Your adjusted sales bring the value down a few thousand more. There is no inventory...and no sales in the last 90 days.

The appraisal could be a deal killer in this scenario....by a mere few thousand dollars. What would you do?

 

[Webbed Feet]

Exactly. Six of one. Half a dozen of the other. Have always used the date the final addendum was signed. Never questioned about it in 23 years. Most of my clients want the wording that I analyzed a "fully executed" contract. So the word executed comes into play. Agree with Timd. That as long as you clearly explain. It should not make a difference.

A real estate appraiser, in most cases of a sale, could only "analyze" (I still hate that, always will, and will never agree that what we do constitutes any "analysis" of a contract. Our trade never became experts on real estate contract analysis just because some nutty people wanted that word used.) an executed document, not an executed contract. The document is "executed" upon signing, the contract is "executed" upon performance and that would be at closing.

 

[Kitarkus]

The lack of disclosure is a big deal here...and a real p in the a. One of my Kansas counties discloses (I pay them $500 per year for the pleasure of their data)....Missouri none disclose.

So let me ask you hypothetically...Scenario example: Let's say you have a typical Purchase Assignment in a suburban area which exhibits a moderate degree of continuity. In this area you have estimated that you have superb comparable sales when compared to your Subject property...these comps settled in the 3-10 month period...none sooner. Your Subject is selling at $1,000 higher than the highest relevant sale in this market area and you are tasked to appraise for the purchase transaction. Your highest comparable sale price is $1K less than your Subject....and they are virtually identical....except your Subject is a non walkout finished basement and your comparable #1 is a walkout finished basement. The Subject and comparable properties are superior houses in this market area and they are reflective of settled sales at the very top of the range of settled sales in this market area during the prior year.

At face value...it would seem...your Subject will adjust to a few thousand dollars +/- LESS than your #1 comp....and thus a few thousand +/- less than the Purchase Price per the Contract. At face value...an upward time adjustment could be difficult to substantiate given the lack of relevant sales during the 0-3 month period....and if an upward time adjustment could be substantiated....your Subject would be a 'market making' high sale price. Your unadjusted sales prices do not bracket the purchase price. Your adjusted sales bring the value down a few thousand more. There is no inventory...and no sales in the last 90 days.

The appraisal could be a deal killer in this scenario....by a mere few thousand dollars. What would you do?

Anyone willing to respond to the above scenario?? After Terrel said, "The one and only thing a MV estimate is NOT is a single point value"........I am very curious to hear from other experienced Appraisals (and Terrel) how they would handle such a scenario.

Thanks,

Kit

 

[Terrel L. Shields]

The appraisal could be a deal killer in this scenario....

I don't kill deals, but I may have to write obituaries. When something is this close then there are times you cannot bracket the sales price, nor should you want to. But I would very carefully study for any differences. Does the assessor value a difference in the walk out and non-walk out basement? Implies a sloped v. level lot perhaps? Would a slight slope be a plus to the land value or not? In our MLS I could pull say, 2 years of sales in that neighborhood and then try to project a price differential between the oldest and newest. If over the past 3-24 months the trend line is increasing then I would not hesitate to indicate that and project it forward beyond my last sale (3 mo. ago) to the present. I bet that would cover the $1,000 if we are talking a more typical house - say $200,000 property. On a $15,000 MH, maybe not so much. clearly you can project a higher unit price using this method and with a larger scale, the projection back to zero (current time) suggests an increase over time of about 3-4% so 1% additional over 3 months isn't an unsupportable adjustment (you supported with the chart whether that proves totally true of not) Months along the bottom vs. the price per SF of sales in the defined market area. (throw out the outliers and the line may shift somewhat flatter too...it's your choice to justify your adjustment. But a reviewer may pan that, but they are not going to kick you on the basis of a "FACT" rather have to dispute your OPINION.

 

[BarrySW1963]

I mis-read and mis-responded.

Buyers can, and do, come out of pocket sometimes to buy something that came in below the contract price.

The price the buyers paid is the actual closed price for later use as a comp, not what the appraiser for the purchase transaction opined.

 

[residentialguy]

You shouldn't be (1) weighting the contract in your final reconciliation nor should you

Absolutely false!

 

[residentialguy]

the Contract is not weighted in the final reconciliation of value. The Contract is not a VALUE INDICATOR which would be suitable for use in a final reconciliation.

Again, absolutely false