Transaction Value Definition(s)

[Randolph Kinney]

A while back, we had a good discussion of licensure limits concerning transaction value limits and what that limit really means. Most people here expressed an opinion that transaction value was the same as loan value.

I had a 7 hour USPAP class today with Roy Bottger teaching for McKissock in San Diego. This same discussion came up about limits on licensure. Roy was challenged by several appraisers who stated transaction value was the loan value. Roy was kind enough to demonstrate where we could find the definitive sources for the definition of transaction value. I am sharing with you all this information. If anyone would like to contact Roy directly for further query, you can email him at roy@mickissock.com.

FDIC Law, Regulations, Related Acts

§ 323.2 Definitions.

(m) Transaction value means:
(1) For loans or other extensions of credit, the amount of the loan or extension of credit;
(2) For sales, leases, purchases, and investments in or exchanges of real property, the market value of the real property interest involved; and
(3) For the pooling of loans or interests in real property for resale or purchase, the amount of the loan or market value of the real property calculated with respect to each such loan or interest in real property.

Each of the above apply as in "or" so that if the loan value, or if the purchase value, or if the pooling of loans for resale or purchase or if the market value, that defines the transaction value, meaning all three conditions apply.

The example in class was a property that was going to be refinanaced with a $600,000 loan and the appraised value (market value) was $2 million, can a trainee appraise this? Can a licensed residential appraise this?

 

[Phil Chamberlin]

Per OREA (State of California, Office of Real Estate Appraisers), Transaction Value = Loan Amount.

I got this answer directly from OREA.

I have the direct phone number to one of the Senior Investigators.

I needed to check a month or two ago when I was doing a review by a Licensed Appraiser (not Certified) - report indicated sale price over $1 million, but 80% loan was under $1 million.

Per OREA that is OK because Transaction Value = Loan Amount

Roy Bottger better contact OREA to get his story correct.

 

[CANative]

orea FAQ's

Question: What is the definition of "Transaction Value?"
Answer: The answer, or definition, can be found in federal and state laws and regulations, which all licensed appraisers are required to read, but which are difficult to understand.

First, transaction value limits pertain only to federally related transactions, that is those transactions involving the Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Controller of the Currency, and the National Credit Union Administration. These organizations regulate most lending institutions.

Second, the transaction value varies from assignment to assignment depending on the intended use of the appraisal. In most assignments, the transaction value is the loan amount, but not always. For example, if the assignment involves estimating the value of a foreclosed property, the transaction value is the market value.

We recommend that appraisers subject to limits imposed by their license level expand on their intended use statement when the appraisal is to be used in a federally related transaction. The statement should qualify the limitation of the transaction value (e.g., the intended use is not for loan amounts, or extensions of credit, of a million dollars or more).

 

[hastalavista]

Randolph-

I may have been involved in that discussion you mention of several months ago.

Thanks for sharing the link!

Phil-

While I'm not necessarily arguing with OREA, one can call there and talk to two different investigators and get two different opinions (not surprising, since we are all appraisers).

Greg's post is the official OREA position; the fact is that the intended use of the report will dictate the transaction amount. This was explained to me in the following manner:

If I am purchasing a house for $1,100,000, and am getting a loan for $900k, the "transaction value" of the assignment is $900k. Although it is a "sale", the transaction amount is the loan amount.

If I am not getting any loan, but am purchasing the house via a "trade" (I'm trading my waterfront home for your penthouse condo in downtown San Francisco), and the market value of the home is $1,100,000, then the transaction amount is over 1-million even though no loan is being made or monies are changing hands.

If I am a bank and am foreclosing on your house, the transaction value is the market value of your home- it doesn't matter if you only owe me $500k (the original loan), if the market value is $1,100,000 and it is being foreclosed on, the transaction value is $1,100,000.

Finally (as far as my examples go), the original intended use of the assignment could be for a first mortgage; the house is worth $1,500,000, and the loan amount is $900k. Transaction value is less than a million- no issues. After the assignment is complete, the appraisal report is then used to get a $200k second; problem! Now, the total loan amounts exceed $1,000,000; so while the appraisal report was good for the first intended use, it cannot be used to piggy-back a 2nd TD, even though nothing has changed in regards to the appraisal analysis itself.

 

[Robert Anderson]

Not to worry--beginning in 2008 the Appraisers Qualification Board requires as a minimum standard that "for non-federally related transaction appraisals, transaction value shall mean market value." You can count on the AQB to make a confusing situation even worse.

 

[Otis Key]

Originally posted by Randolph Kinney@Jan 6 2006, 09:58 PM
A while back, we had a good discussion of licensure limits concerning transaction value limits and what that limit really means. Most people here expressed an opinion that transaction value was the same as loan value.

I had a 7 hour USPAP class today with Roy Bottger teaching for McKissock in San Diego. This same discussion came up about limits on licensure. Roy was challenged by several appraisers who stated transaction value was the loan value. Roy was kind enough to demonstrate where we could find the definitive sources for the definition of transaction value. I am sharing with you all this information. If anyone would like to contact Roy directly for further query, you can email him at roy@mickissock.com.

FDIC Law, Regulations, Related Acts

§ 323.2 Definitions.

(m) Transaction value means:
(1) For loans or other extensions of credit, the amount of the loan or extension of credit;
(2) For sales, leases, purchases, and investments in or exchanges of real property, the market value of the real property interest involved; and
(3) For the pooling of loans or interests in real property for resale or purchase, the amount of the loan or market value of the real property calculated with respect to each such loan or interest in real property.

Each of the above apply as in "or" so that if the loan value, or if the purchase value, or if the pooling of loans for resale or purchase or if the market value, that defines the transaction value, meaning all three conditions apply.

The example in class was a property that was going to be refinanaced with a $600,000 loan and the appraised value (market value) was $2 million, can a trainee appraise this? Can a licensed residential appraise this?

Soooooooooooo!!!!!!!!!! Does that now mean I can base my fee upon a percentage of the "Transaction Value" and not worry about being in violation of USPAP, because I'm not basing my fee upon a percentage of the sale price!?

<_<

 

[Couch Potato]

Originally posted by Robert Anderson@Jan 7 2006, 02:15 AM
Not to worry--beginning in 2008 the Appraisers Qualification Board requires as a minimum standard that "for non-federally related transaction appraisals, transaction value shall mean market value." You can count on the AQB to make a confusing situation even worse.

This would mean a Licensed appraiser would never be able to comply with USPAP. They will have PREDETERMINED the market value to accept the assignment.

 

[Carnivore]

Originally posted by Robert Anderson@Jan 7 2006, 02:15 AM
Not to worry--beginning in 2008 the Appraisers Qualification Board requires as a minimum standard that "for non-federally related transaction appraisals, transaction value shall mean market value." You can count on the AQB to make a confusing situation even worse.

Robert,

Actually, I think that is one of the few things that they have done correctly. Think about it for a moment and you will see that there is no debate anymore.

Why they have to wait till 2008 is a mystery to me. Maybe its to give the Quick, Lean & Cheap crowed time to lobby for a more favorable law or rule.

 

[DTB]

Originally posted by Denis DeSaix@Jan 7 2006, 12:50 AM


If I am not getting any loan, but am purchasing the house via a "trade" (I'm trading my waterfront home for your penthouse condo in downtown San Francisco), and the market value of the home is $1,100,000, then the transaction amount is over 1-million even though no loan is being made or monies are changing hands.

First, transaction value limits pertain only to federally related transactions, that is those transactions involving the Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Reserve Board, Office of the Controller of the Currency, and the National Credit Union Administration. These organizations regulate most lending institutions.

And there would be no limit, correct?

 

[Randolph Kinney]

Originally posted by Phil Chamberlin@Jan 6 2006, 08:08 PM
Per OREA (State of California, Office of Real Estate Appraisers), Transaction Value = Loan Amount.

I got this answer directly from OREA.

I have the direct phone number to one of the Senior Investigators.

I needed to check a month or two ago when I was doing a review by a Licensed Appraiser (not Certified) - report indicated sale price over $1 million, but 80% loan was under $1 million.

Per OREA that is OK because Transaction Value = Loan Amount

Roy Bottger better contact OREA to get his story correct.

Phil, I can sympathize with you and what you were told by OREA. I too have called OREA and they told me that it meant purchase price or loan value, whichever was higher. As I learned in class, transaction value includes all three values; loan value, purchase value, and market value, whichever is higher is the limit to be applied as the transaction value.

We had several people in the class comment about calling OREA and getting different responses to this question of licensure limit and the meaning of transaction value. Roy's response was that calling OREA is like calling the IRS for tax information or advice; you don't necessarily get the all the information applicable or you get the wrong advice for your tax situation.

Just like finding out that the information or advice from the IRS was incorrect, some appraisers are going to discover that being verbally told by OREA is not going to protect them when they find themselves in hot water.