Solution to contract dilema

[Stone]

Stone, I'd agree to some extent, except that the housing collapse, with large amount of inflated appraisals found, and the fact that 40% or more of Americans are underwater on their mortgages for properties they over leveraged based on appraisals with inflated values lends support.

If over the years, (nearly two decades) aprox 50% of the appraisals homeowners or others provide me with turn out to be sheer number hit garbage, is that a coincidence? Especially when appraiser friends I speak to from different areas of the country experience the same thing? Added to the terrible reports seen on review, it kind of paints a clear picture...some choose to ignore it but the evidence was in the media for several years post boom from regions all over the nation....kind of hard to ignore that, even though one can question my direct experience!

(no hard feelings about your observation btw)

I still hesitate to buy that anyone can really know what is put out there everyday (actually, I just don't buy it at all...). And, I hate making life more difficult for everyone (multiple phase assignments mean more headache to me at least) because of a perception that something is the norm. I don't buy that people having a contract was even close to the biggest problem. YMMV.

(glad it wasn't take as an insult)

 

[sputnam]

A real appraiser would not see a dilemma regarding a sales contract.

One of your sillier notions J.

I couldn't agree more.

 

[J Grant]

Okay, you guys made some valid points, just thought I'd float the idea! ):

 

[residentialguy]

The first appraisal is done with no sales contract or contract price known. That removes the bias.

No it doesn't. Removing market data creates bias. You're not developing your opinion based upon all the market data. It's a selection bias and conclusions drawn may be wrong because of it. That is just as wrong as a the bias that some appraisers are guilty of by cherry picking comps to support the subject contract.

 

[J Grant]

The sales contract would be known to appraiser on reconciliation phase, so they would have the opportunity at that time to develop their opinion with all the market data. It is not so much about removing bias, as making it tougher for those with an agenda of appraising to SC price to do so.

However, I understand that it also would make it more cumbersome for those with no agenda, so I understand why they would not welcome the extra time and step involved.

 

[Mike Kennedy]

The sales contract would be known to appraiser on reconciliation phase, so they would have the opportunity at that time to develop their opinion with all the market data. It is not so much about removing bias, as making it tougher for those with an agenda of appraising to SC price to do so.

However, I understand that it also would make it more cumbersome for those with no agenda, so I understand why they would not welcome the extra time and step involved.

"The Agenda" http://appraisersforum.com/showpost.php?p=2391407&postcount=299

 

[residentialguy]

The sales contract would be known to appraiser on reconciliation phase...

Which means you're creating bias in the development of MV. How would you feel if the lender said that you can't look at any agreements on your most similar comps because they were REOs? I certainly would object to that. Withholding market data creates bias and is against Dodd Frank.

 

[J Grant]

?? An agreement on a comp is a comp. The subject is not a comp. I know you use it as a comp, but it is not a comp. The comps are what we compare to the subject. Therefore, withholding a CS price on a subject till reconciliation phase is not the same .

May I ask, since we don't need a contract of sale to derive a market value for a subject when it is refinance purpose, why do you need it on a purchase appraisal, for the value development prior to reconciliation?

Develop the value opinion, you have subject list price and the fact that there is a contract on it, so there is some additional information available. Then, after market value is arrived at and submitted, the report comes back with the SC price and contract, to be analyzed and considered in reconciliation phase. The appraiser can consider the SC price at that point in reconciliation phase as additional market data.

I see this is not a popular idea and likely won't ever be in play. What it would accomplish though, is expose the gap, when there are gaps, between the original market value opinion and the SC price. That would really show whether or not the SC price is a reasonable market value indicator.

For example, let's take a 157k sales price contract. If the appraiser developed a value opinion of 153 k and then got the SC price and contract in reconciliation phase and thought the subject was a quality house and prices were rising, they can reconcile to 157k, and it would be a supportable statement that the 157k contract is an additional and credible market value indicator.

However, if appraiser original value was 145k, and then they get a SC in reconciliation phase of 157k, it's tough to support saying that the SC price is a reasonable indicator of MV, when the gap is so large. At that point, either the sales contract is not a good indicator of market value, or the comps and adjustments are wrong. It makes issues like this transparent.

Right now, an appraiser with an agenda does a market value opinion coming in around 145k . They know the SC price is 157k, and their agenda is to make the SC price supported. Thus, they either change their adjustments, or drag in a superior comp , make no adjustment for superior aspects, and that comp brackets the high end, and now the 157k fits within the adjusted range, and appraiser states, "the SC price of 157k was a reasonable indicator of market value". Really? Actually, it wasn't, but the report sure makes it look like it was~!

 

[residentialguy]

May I ask, since we don't need a contract of sale to derive a market value for a subject when it is refinance purpose, so why is it needed in a purchase appraisal, for the value development prior to reconciliation?

Because, like comp 1, it's market data.

 

[residentialguy]

That would really show whether or not the SC price is a reasonable market value indicator.

That's not our job. Our job is to look at all the market indicators so that we can develop an opinion of maket value, not whether or not the subject was a good buy or not. If we see that the subject is not a good indicator of MV, then we don't place any weight on it...just as you wouldn't place weight on outlier comps that aren't a good reflection of MV