Re-appraisal

[Doug in NC]

I know it has been discussed many times, but what do the ancient USPAP scrolls say about appraising a home for a homeowner, then the homeowner transfers to a lender when a sale occurs? I have a feeling that this is going to occur and I want to be prepared.

I have completed an appraisal for the homeowner. They will be making an offer on a home by early next week (weird right, they ordered an appraisal to find out what the home is worth before they spend a few hundred thousand dollars. What's this world coming to?). Hopefully, they won't pay more than what it was appraised at, but I have a feeling it could go higher. The home is in an executive price range and a few percentage points difference could mean $10,000 or more in value. It was priced substantially higher than it appraised at as well, so the homeowner is probably going to throw a fit when he gets the ("lowball" in his eyes) offer.

I intend to get a written statement from the homeowner stating that they would like for me to transfer their appraisal to their bank if an agreement can be reached on the sale price. But, what if the sale price is reasonably above the appraised value? I won't be able to transfer the appraisal if that is the case. Do I then do a new appraisal for the bank, provided the sale price is within reason? I ask this because, as stated above, potentially the home is worth more than I appraised it at. It is a unique property with no good recent comparable sales in the area. It is one story, all brick, in an above-average price range, in a small subdivision with no recent comparable sales (one home is listed for sale in the subdivision but is priced MUCH higher than the subject), has above-average size lot, has large unfinished second level, and backs up to US Corp of Engineer land (generally preferred since you don't have to worry about it being built upon).

Is there some kind of rule of thumb on this? I have heard before that something like 2% is acceptable but I don't know where this comes from (an acceptable margin of error I guess). If the sale price is substantially higher than the appraised value, I will refuse to make a change. What is an appraiser to do in this circumstance? I know this happens to other appraisers from time to time, as I have read similar stories at this site.

 

[Pamela Crowley (Florida)]

Without going into the whole sordid story, I just told a homeowner this week that he should sell it for whatever he can get and to let the buyer find another appraiser for themselves. I finished a very well documented appraisal that turned out under what he had paid for the property 4 years ago. I had the chance to look at the appraisal from 4 years ago and it was pretty bad.

Sometimes, it's better to let someone else do another one.

 

[Tom Hildebrandt]

Doug

First be sure in your written report you identify that the client is intending to use this report for assistance in negotiations pursuant to purchasing the subject property. Ask the client if he desires the current owner to rely on the report in considering a selling price. If so, identify the current owner as an intended user. If your client does not want the current owner to rely on the report, be sure you specifically state that they are not an intended user. I would also be sure that you state that this work product is not intended to be used for loan risk analysis or other mortgage purposes.

Since the use is for negotiations, you should actually be advising your client of a range of value, not a point value. The range should encompass the maximum price possible, the lowest possible price and the most propable price (market value).

Now when the bank comes to you and asks for a new appraisal, you are covered. In your new appraisal, you analyze the contract price and any new sales which may have popped up, reconcile the data and provide a value conclusion. If your prior work was solid, the sales price should be in your range.

Do not just readdress your old report, remember, you have to discuss any current contract and offer, and you will need new dates of inspection and report in addition to changing the client box.

If you do the work in this manner, there are no possible conflicts, no one is mislead and you two jobs, not one. Charge what you will, perhaps more than one but less than two appraisals.

Regards

Tom Hildebrandt GAA

 

[Jeff Horton]

Someone correct me if I am wrong but my understanding is that any appraisal request for a lender HAS to come from the lender. We can not just transfer an owner requested appraisal to a lender.

Seems like this is a FIRREA rule?

If I am mistaken please tell me. Becuase I always question individuals when they call and warn them that if they request it they can not take it Rate Shopping to lenders.

 

[Tom Hildebrandt]

Jeff

You are exactly right. This is a federal rule for lending. In the traditional lending situation, the lender must be the client.

Just remember, when you prepare a written report, the client can give it to any one else they wish and suggest that the person they give it to can use it for whatever purpose they may propose. As the appraiser, our best defense against the inappropriate use of our reports is not in boiler plate limiting conditions, but in the very upfront part of the report where we must state the client, intended users and the intended use. An appraiser limits his liability by stating with specificity what the intended use (as well as client and other users) might be. This serves as notice in the written report to others (particularly state boards) exazctly what the intended use might be.

The more specifically you identify the users and use of your reports, the better off you will be.

Regards

Tom Hildebrandt GAA

 

[Jeff Horton]

Thanks Tom. I thought I had learned that in a USPAP class.

And in my cover letter I have created it so that it pulls in the Clients name automatically in a statement that reads it is for the use of the Client only. Then I have a statement as what I am estimating (ie. Market Value).

 

[Richard Carlsen]

I'm not sure if you are talking about appraising a house for the Buyer or the Seller. If you are doing it for the Seller for selling decisions and you so state that in the report, then it cannot be transferred to a lender for use by a Buyer unless you change the purpose of the appraisal to lending determination, change the lender to the client and make sure that the report complies with the lenders requirements if any for the secondary market. Remember that when you do an appraisal for a seller, you are not bound by the rules of the secondary market. I put a statement in the report that it is for assistance in selling price determination and that the report does not comply with the rules of the secondary market. You can really get creative in doing a report for a seller.

I had a seller (and a personal friend) call me Tuesday and ask if I could give him a copy of the appraisal I did on his house about 2 years ago. The listing broker wanted it because a potential buyer had been told that it had been appraised for refinancing and the potential buyer wanted to see the appraisal. I politely declined the request stating that the report was not mine but that it belonged to the lender. I also pointed out that since the report, the road had been blacktoped and now carried about 10 times the traffic it had before. This was no doubt the reason that in order to generate a buyer; the house had to be listed slightly below the appraised value. That and the decline in the economy during the past 18 months. He agreed with me and that was the last of it. Friday I received an order to do an appraisal on the house for the purchase. It will be a whole new appraisal, taking into account all of the facets of the market, location and the economy as they are now.

If you were to an appraisal for a potential buyer and say you come up with $200,000, I see any problem with doing an appraisal for the lender if the sales price was say $220,000. You would have to disclose your former fiduciary statues with the buyer to the lender and put that in the report. Unless there were additional recent comps to support the higher value, you could open yourself up to possible violations. It would seem like a conflict of interest to me and not a disinterested third party to the transaction. If however, your roll was as a councilor to the Buyer and you were simply advising them on what to offer and the value ranges of the property, depending on how you stated it in the report, there would be no conflict. In this case however, it would seem to me that you would be obligated to do a complete new appraisal, as the old one would not follow required guidelines.

 

[Anonymous]

After years of refining, I have a summary narrative report for residences that is about as quick as a URAR form to fill out - roughly 25 pages. I do not submit URAR reports to individuals...only narratives.

As a consequence I have never in 11 years had a bank ask for a "new cover letter" etc. from a narrative report. A couple asked for new reports on URARs and I got a full fee.

Learn to write narratives....

Terrel

 

[Doug in NC]

Sorry for the mistake, the appraisal was performed for a potential "buyer", not the homeowner. The buyer wanted to know if the property was actually worth anything near what the seller was asking. Their original intent was to begin negotiation near the figure that the appraisal came in at, that may change now.

 

[Doug in NC]

Tom,

Thanks for the "range of value" idea. I hadn't thought about that on this one, but if there ever is another I will float the idea to the potential buyer. How much of a range would you give them, too big a gap would appear vague and possibly misleading?

Doug