Sudden Increase Of Value From Previous Purchase

[Joe Flacco]

I would do some additional market conditions analysis and see if prices are actually stable. See what the "similar comps" were selling for a year ago. The logical explanations are either it sold a little low before, prices are increasing, or there is something about the property that is less attractive compared to the other properties.

If market conditions analysis suggests that prices are stable, a nine month old sale of the subject property is probably a very good indicator of value.

 

[bnmappraisal]

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

Good catch DTB. It took me a 2nd read through to see that!

 

[bnmappraisal]

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

How much higher is your OMV compared to the prior purchase price? (percentage wise I mean)

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 agree with Chad on this one as I run into it myself.

 

[erockinaz]

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

OP, do yourself a favor and always address any increase in value ahead of sending the appraisal to the client, if you don't it will always bite you in the *** and it is always easier to address it upfront, especially if you indicate the market is stable. My comments can range from a simple canned comment if the comp sold two or three years ago and I can show that the appreciation is consistent with general market appreciation (run the numbers and put them in the comment) to complex comments showing sub market appreciation, property improvements (get numbers when you can), or proof of non-arms length transactions. Fix and flips are common in my market, and I make sure I get the info I need from the seller or agent so that I can include it in my appraisal, and I never have an issue. The days of ignoring or barely acknowledging things like short term value change are over. Take the time to dot you eyes and cross your tees and it will make your life a little easier. Good luck!

 

[J Grant]

OP, do yourself a favor and always address any increase in value ahead of sending the appraisal to the client,

The above post gave excellent advice. However better to say "address any variance from the prior sale price"; (rather than increase/ decrease in value) .

We should speak in terms of a prior sale price, not a prior sale value. Verbiage would be prices appreciated, not values appreciated. Clients and RE agents and the public can get away with using price and value interchangeably but not appraisers. Like all the other advice about analysis as well as what kind of statements may be appropriate to different scenarios.

 

[Deleted member 128537]

In many cases a property can sell for less than the appraised value. I have had this happen often when I do appraisals. The sale price is say 400,000, and I appraise it for 450,000. Reasons: I have seen properties poorly marketed. Such as the house is not described adequately, the stats on the house are incorrect, the property was on the market too long and sellers became a bit desperate, etc. In fact my own house that I bought was poorly marketed. It was put in the MLS as a manufactured home. However it was a Wisconsin modular home. That's a big difference! I could tell from the MLS photos what kind of house it was. In fact I owned a dealership that built Wisconsin homes which are very high quality modulars. I bought the house 20,000 under the appraised value. When we bought the house I said it should appraise for 215,000 and sure enough that is exactly what the appraisal came in at. Also we bought the house when the seller was a bit more motivated. The agent had grossly over priced the property and thus it sat on the market for way too long. I came in with a very aggressive negotiating stance (take it or leave it). They were too afraid to negotiate and I knew it. I can smell a bit of desperation. I could have come in lower, but I didn't want to completely take advantage of the situation. I like to sleep at night. Also when a property is on the market too long this has a tendency to stigmatize a property. I use to sell property for five years, and I always told people that over pricing the property to start with can actually be a negative as the first lookers are often the most interested. You will never get them back.

So my advice is ask, "Why did the property sell for less? Were there circumstances in the sale, the marketing, etc that would cause it?"

 

[Mike Kennedy]

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!

1. Was the prior owner a "flipper"??? When did the prior owner purchase the property and at what price?

2. "stable market" contradicts "comps......selling much higher than orig. purchase price".

 

[J Grant]

2. "stable market" contradicts "comps......selling much higher than orig. purchase price".

Not necessarily. If the subject was purchased at a lower price in prior sale for (fill in the reason); explain that it was purchased at X$ lower than typical prices nine months ago /why in your analysis it did. Then comment that current OMV is Y$ because it was developed using the recent comp sales similar to subject.

I don't think appraisers should be put in a defensive position about their OMV vs what subject last sale price was. We were not involved with the prior sale nor the past appraisal if subject was financed. Though we can analyze /comment on a prior sale price, we are only responsible for our own opinion of market value.

 

[timd354]

I don't think appraisers should be put in a defensive position about their OMV vs what subject last sale price was. We were not involved with the prior sale nor the past appraisal if subject was financed. Though we can analyze /comment on a prior sale price, we are only responsible for our own opinion of market value.

That's a load of crap. Of course the appraiser should be put on the defensive when the appraisal report states the subject's market is stable, the appraised value is substantially higher than a recent sale, no significant renovations or updating has been done since the prior recent sale, and the appraisal report provides no analysis or explanation for the apparent increase in value. Appraisers cannot just deliver a market value opinion without an explanation of how that opinion fits into the market and especially a recent sale of the subject property and expect not to be questioned about it.

 

[J Grant]

Who said the appraiser should not analyze the prior sale? Assuming appraiser analyzes prior sale, why should the appraiser be put in the position of being defensive that a subject sold at a higher or lower price 9 months ago, if all the comps and listings used support the subject effective date opinion of market value?

I sold RE for over 5 years in 2 different states and prices can jump around for no particular reason that neatly fits into an analysis.