Relying on Pending Sales

[rijman]

Is anyone familiar with the specific FNMA guideline that requires the appraisal value be supported but closed sales only and cannot be supported primarily by pending sales(s)?

It seems as though I read this years ago and it is a guideline I have long believed was in violation of USPAP. There are situations where the best comp is a confirmed pending sale, and to ignore it or give it less consideration than undesirable closed sales because of FNMA guidelines is a violation of USPAP in my opinion, which has no requirement for following lending industry guidelines.

There have been situations over the years where my Comp #1 has been a pending sale for non lender work. One situation was a divorce appraisal with no recent similar closed comps although there was a model match pending sale for which I was able to confirm to contract sales price. The pending sales price was within the adjusted range of my other comps and it was clearly the best comparable. Neither side disputed the value or the pending sale comp and went I went to court to make an appearance to "put a face to the report" I was not questioned on the value and both sides accepted the report value for their settlement.

I have always understaood FNMA would not allow using a pending sale as comp #1 and some UW's I have dealt with over the years will not allow the use of a pending sale within the first 3 comps, which may just be ignorance on their part.

Question; If a pending sale is your best comp, but you place all emphasis on your adjusted closed sales, which vary in adjusted value from the adjusted pending sale, have you completed a misleading report in violation of USPAP?

 

[panappr]

In theory and IMO current market value has always been the most recent, and relevant indicator of value. FNMA lives in an over-regulated law of constituted authority that leaves few options.

 

[Terrel L. Shields]

it is a guideline I have long believed was in violation of USPAP

i agree, at least on the technical level, that FNMA's requirement of 3 closed sales could violate their own rules to an appraisers requirement to use the most "recent, similiar, and proximate" sales, and to me a pending "sale" is a sale, especially when it is clearly going to go through. But on the practical side, I doubt the mavens of USPAP would dare challenge Fannie mae... quarter stock that it is...

When has TAF NOT backed down? They did in 1999 when the certification was slightly different...and they certainly do not provide any guidance about being cautious using either FHA or Fannie/Freddy guidelines, even when such conflicts appear to be apparent....welcome to the catch 22 world of government running anything effectively...including fannie mae.

 

[CANative]

Look at the entire picture instead of just the few examples that are placed in a form grid. One pending sale, a couple or three sales, a contracted sale, a sale about to close are fine but there is a lot more market data to sift through and think about before relying on anything.

Write the narrative so that everything makes sense and reflects the entire process you went through (summarize) instead of just a few comments that merely (state) the results.

 

[Mike Kennedy]

Part B, Origination Through Closing
Subpart 4, Underwriting Property
Chapter 1, Appraisal Guidelines, Appraisal Report Assessment​

June 30, 2010

General Requirements
​

The table below provides general requirements for selecting comparable sales.
Requirement
Influences that may affect value based on market evidence—such as closed sales, contract sales, and offerings or listings of the most comparable properties for sale in the market area; market studies; etc.—must be researched, analyzed, and considered in the appraisal report.​

Requirement
A minimum of three comparable sales must be reported as part of the sales comparison approach to value.
More than three comparable sales may be submitted to support the opinion of market value provided at least three are actual settled or closed sales.​

It is preferable for the appraiser to provide comparables from the subject’s neighborhood, however, Fannie Mae does allow for the use of comparable sales that are located in competing neighborhoods, as these may simply be the best
comparables available and the most appropriate for the appraiser’s analysis. If this situation arises, the appraiser must not expand the neighborhood boundaries just to encompass the comparables selected. The appraiser must indicate the
comparables are from a competing neighborhood and address any differences that exist. The appraiser must also provide an explanation as to why he or she used the specific comparable sales in the appraisal report and include a discussion of how a competing neighborhood is comparable to the subject neighborhood.​

Comparable sales that have been settled or closed within the last 12 months should be used in the appraisal. Older comparable sales that are the best indicator of value for the subject property can be used if appropriate. Comparable sales that are more than six months old must be accompanied by an appraiser explanation for use.​

For example, if the subject property is located in a rural area that has minimal sales activity, the appraiser may not be able to locate three truly comparable sales that sold in the last 12 months. In this case, the appraiser may use older comparable sales as long as he or she explains why they are being used. ​

The subject property can be used as a fourth comparable sale or as supporting data if it was previously sold and closed or settled.​

Contract offerings and current listings can be used as supporting data if appropriate.​

Rural Properties
Rural properties often have large lot sizes and rural locations can be relatively undeveloped; therefore, there may be a shortage (or absence) of recent truly comparable sales in the immediate vicinity of a subject property that is in a rural location. Comparable sales located a considerable distance from the subject property can be used if they represent the best indicator of value for the subject property. The appraisal must include an explanation of why the particular comparables were selected. ​

Printed copies may not be the most current version. For the most current version, go to the online version at​

http://www.efanniemae.com/sf/guides/ssg/. 535

P.S. re OP, there is no current specific requirement or guideline which:

a. stipulates sequential order of comparables in SCA grid
b. stipulates only closed sales must be C1,2,3 (excepting recent sale of subject as C4)
c. precludes giving truly competitive actives &/or contracted sales weight in the SCA Grid and Reconciliation of the SCA.

Clearly more weight is typically given to confirmed, closed sales by Buyers. IMO confirmed, contracted sales are given more weight than active listings which ARE given weight by buyers' in the decision making process in MY markets...... Buyers in yours, and other markets......may vary.

 

[Lloyd Bonafide]

The problem with relying too much on a pending sale is that not all pending sales will close, or they will not close at the same price / terms as we were led to believe. So if your pending sale falls apart, what are you left with a few months after the report is done? Not much.

 

[Mike Kennedy]

As of the Effective Date, a confirmed Contracted Sale is a valid indicator. What may occur months later is not an issue. As I noted above........YES most weight is / and, I agree with you, SHOULD be placed on the most recent confirmed, Closed/Settled Sales.

 

[Lee Lansford]

Is anyone familiar with the specific FNMA guideline that requires the appraisal value be supported but closed sales only and cannot be supported primarily by pending sales(s)?

It seems as though I read this years ago and it is a guideline I have long believed was in violation of USPAP. There are situations where the best comp is a confirmed pending sale, and to ignore it or give it less consideration than undesirable closed sales because of FNMA guidelines is a violation of USPAP in my opinion, which has no requirement for following lending industry guidelines.

There have been situations over the years where my Comp #1 has been a pending sale for non lender work. One situation was a divorce appraisal with no recent similar closed comps although there was a model match pending sale for which I was able to confirm to contract sales price. The pending sales price was within the adjusted range of my other comps and it was clearly the best comparable. Neither side disputed the value or the pending sale comp and went I went to court to make an appearance to "put a face to the report" I was not questioned on the value and both sides accepted the report value for their settlement.

I have always understaood FNMA would not allow using a pending sale as comp #1 and some UW's I have dealt with over the years will not allow the use of a pending sale within the first 3 comps, which may just be ignorance on their part.

Question; If a pending sale is your best comp, but you place all emphasis on your adjusted closed sales, which vary in adjusted value from the adjusted pending sale, have you completed a misleading report in violation of USPAP?

Your final question is not totally in keeping with comes before.

If you ask would I--for appraisals for use in residential lending--insert a pending sale among the first three "comps", the answer would be no.

If you ask might a pending sale weigh heavily in arriving at an opinion of value, the answer might be yes.

 

[rijman]

Clearly more weight is typically given to confirmed, closed sales by Buyers. IMO confirmed, contracted sales are given more weight than active listings which ARE given weight by buyers' in the decision making process in MY markets...... Buyers in yours, and other markets......may vary.
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I have seen situations where there are no recent similar sales in the subject's market, perhaps the market was limited in size, yet there is a recent pending sale and the listing agent had reported the contract sales price to market participants. I have seen situations where the contract pending sale was the market and dictated the actions of buyers and sellers. In this case will most UW's allow the pending sale gridded as comp #1, 2 or 3? Most will not allow it believing they are following Fannie guidelines. As I understand Fannie guidelines they allow an appraiser to use pendings and actives for support, but the value still has to be supported by closed sales. So Fannie allows an appraiser to use pendings to confirm the closed sales, but what happens when the pending sale varies from the only weak and/or dated closed sales in the available in the market? This is where I believe most residential appraisers will follow Fannie guidelines thinking they are doing their job when in fact their job is to support market value regardless of lender guidelines. When I appraise for divorce, estates or equity lines I don't adhere to the 3 closed sales guideline or relying on pendings for support only. If there are only 2 relevant sales that's all I include in the report. If a pending sale, with confirmed contract sales price, is the best comp it is likely comp #1 in my report.

I agree, what happens to the pending sale after the appraisal date is of no importance. We work with the data available as of the appraisal date and future outcomes have no effect on the report. A pending sale could fall out, but that doesn't invalidate the contracted sales price, which could have been at market value. The buyer may have been unable to get a loan through no fault of the property or decided to buy in another neighborhood.

 

[Lakefront boater]

This might be a little too much on the what if side of things but-
In the event the pending sale is being used by brokers to drive up the market for appraisal purposes you sure would not want that to be given equal weight as a sold comp, I wouldn't think a pending sale in comps 1-3 is a very good idea at all by any means.

Also, I've always thought the contract price of a pending sale should not be revealed to parties outside the transaction (maybe your referring to the list price of the pending sale? and not a contract price).

Why would a broker reveal a contract price of a pending, then have the deal fall through and it's back on the market at the list price?