Sudden Increase Of Value From Previous Purchase

[hvn2006]

Hi, need help on a condition from the lender. The lender is requesting a comment on why the appraisal value is higher than the previous purchase price 9 months prior sale. I also have reported that the subject is in a stable market. I will add some factors that can be considered.

1. Subject property was improved and renovated with remodeled kitchen, bathrooms, new fence, new furnace, new water heater, and new carpet. These improvements were done from the previous owner and not the current owner.

2. Can I make a comment suggesting appreciation within 9 months prior from purchase in a stable market?

3. Comps with similar amenities are selling much higher than the original purchase price 9 months ago.

Any suggestions would be greatly appreciated, thanks!

 

[Deleted member 134708]

"A retrospective valuation was not done on the property. The appraiser cannot comment whether the prior sale price was below, at or above market value." The current opinion of value is x% above the prior sale price......then state a few facts but I wouldn't give a reason why above since you didn't know market value from 9 months ago. You have no baseline unless did retrospective appraisal. Can't go wrong stating facts and let them come to a conclusion.

 

[gregb]

Research and analysis of prior sale of subject within three years is required on Fannie 1004. One might reasonably be expected to explain the difference between either the condition of the subject or the change in market conditions between the prior sale of the subject and the current appraised value. Other factors may apply; perhaps prior sale of subject was not an arms length sale etc.

 

[Terrel L. Shields]

When I see a big difference in price & appraisal I would want to investigate and do so beforehand. Distressed sale or uninformed seller, you should ask the seller or owners.

 

[J Grant]

Can you ask the owner about prior sale if they can shed any light on it.

I write something like this: "The prior sale of subject occurred in a different market cycle and appears to have been purchased for a lower price than typical prices at the time. The current effective date opinion of market value was developed using recent sales of properties similar to subject as well as considering pending and listing activity of competitive properties."

 

[Michigan CG]

............I write something like this: "The prior sale of subject occurred in a different market cycle and appears to have been purchased for a lower price than typical prices at the time. The current effective date opinion of market value was developed using recent sales of properties similar to subject as well as considering pending and listing activity of competitive properties."

And nowhere in your canned comment do you address why the property sold so much higher. Where in the canned comment is your ANALYSIS of the prior sale? Where in this canned comment do you actually tell the reader the possible reasons the home sold for so much more? Where in the canned comment do you tell the reader of the report who you talked to?

 

[chad hampton]

It would help if we had some numbers to go off of. In my market, if a home sold for $300k a year ago and they installed a new kitchen/bath/hvac/etc, it's not unreasonable to see that home sell for $375 to $400 assuming the comps support it.

I get requests like that all the time - you would think since you stated in the report all of these updates that have occurred in the prior 12 month that is would be understood, but since these reports aren't read by people anymore, it's not.

In my market, I also state the market is stable to moderately increasing. Some lenders think stable means 0%, whereas I feel stable is a steady 1-5% increase a year.

I would say exactly what you are thinking - 'the market is stable to moderately increasing and the subject has updates/renovations since it's prior purchase. Therefore, the subject's current opinion of value greater than the prior 2014/2015 purchase price".

I've found that the people that call for these sort of requests don't really care what you say, just that you say something. Taken me a while to figure out the lender/UW mentality.

 

[J Grant]

You ignored my first statement about ask the owner about prior sale in my post. One assumes that information would be added. The "canned statement" is a template, an appraiser can add as much additional information as they wish (who they talked to, further analysis of prior sale etc).

The question for me is not why it "Sold higher", I appraised it at current effective date market value opinion. If it sold "lower" last prior sale, and the owner or agent can give me a reason ( less upgrades, or cash deal, or just got lucky got a good deal), I can state that as the analysis. Sometimes nothing has changed...no new upgrades, no great market appreciation, but today's comps show it is worth X$. That in itself is an analysis, today's comps show a different value than the prior market cycle may have since the closed sales at that time are older and would be different. Sometimes we are faced with the opposite, the owner may have overpaid and now we appraise it for a different OMV that is lower.

Our assignment is a current effective date OMV, so be careful about saying the prior sale was below or above market value, as that implies a retrospective appraisal of that prior sale.

 

[J Grant]

The lender is requesting a comment on why the appraisal value is higher than the previous purchase price 9 months prior sale.

OP, the above question is different than your question, "why the sudden increase in value". The lender is asking why your appraisal OMV (opinion of market value) is "higher" than the previous price, not whether the subject has increased in value. We have to be careful about this distinction. We don't know if the subject sold for "market value" in prior sale, we don't want to comment on whether or not it sold for market value in prior sale because to do so means you just did a retrospective appraisal of subject on prior date (which is not the assignment).

Provide whatever explanation /analysis you can about prior sale. And then re state that your market value opinion reflects effective date comp sales of most similar houses supported by listing activity. Don't discuss an increase in value because regardless of what they paid , you don't know what the "value" of the subject was 9 months ago since you did not appraise it at that time.

 

[DTB]

It would help if we had some numbers to go off of. In my market, if a home sold for $300k a year ago and they installed a new kitchen/bath/hvac/etc, it's not unreasonable to see that home sell for $375 to $400 assuming the comps support it.

I get requests like that all the time - you would think since you stated in the report all of these updates that have occurred in the prior 12 month that is would be understood, but since these reports aren't read by people anymore, it's not.

In my market, I also state the market is stable to moderately increasing. Some lenders think stable means 0%, whereas I feel stable is a steady 1-5% increase a year.

I would say exactly what you are thinking - 'the market is stable to moderately increasing and the subject has updates/renovations since it's prior purchase. Therefore, the subject's current opinion of value greater than the prior 2014/2015 purchase price".

I've found that the people that call for these sort of requests don't really care what you say, just that you say something. Taken me a while to figure out the lender/UW mentality.

The updates were completed prior to the last sale...