USPAP Question About Value Estimate In Relation To Recent Sale

[MASSAPP]

Hi appraisersforum folks!

I have a brief question about USPAP.

Scenario is this.

I appraised small warehouse for 2.5% below most recent sale of the property. Sale within 30 days of effective date. I fully analyzed the transfer and disclosed what was garnered. Property not exposed to market, tenant purchased from landlord, both parties had their own agents. Considered arms length.

I have been asked to explain why I came in lower and why I did not include a statement on why I came in lower in the report.

Is an explanation required by USPAP?

I am not sure what to say other than I think I did a good job, adequately supported my opinion......

what would you say? If anything...

I appreciate your thoughts and help.

Be Blessed.

 

[Howard Klahr]

I have been asked to explain why I came in lower and why I did not include a statement on why I came in lower in the report.

What did your supervisor say?

 

[PL1957]

[QUOTE="MASSAPP, post: 2862279, member:I have been asked to explain why I came in lower and why I did not include a statement on why I came in lower in the report.

Is an explanation required by USPAP?.[/QUOTE]
USPAP does require you to analyze the previous sale, but, just as importantly, it's a logical question from the reader of the report. Why would you not explain it in the first place? Did you think the client wouldn't notice?

 

[gregb]

tenant purchased from landlord

This likely at the heart of explaining the prior sale of subject.

 

[DWiley]

While USPAP does require analysis of prior sales, reconciling a prior sale with the current value opinion is not a USPAP requirement. It is, however, a valid expectation of many users.

 

[JTip]

While USPAP does require analysis of prior sales, reconciling a prior sale with the current value opinion is not a USPAP requirement. It is, however, a valid expectation of many users.

I had a lender send me a nasty letter because I came in below a 2012 purchase price. My sales were all within a few blocks of the subject and my report was well supported.

They wanted to know why my value was lower than the 6 yo purchase price (appraisal), and I said I would be happy to do a retrospective appraisal or review if they wanted that question answered. Otherwise the prior sale means nothing to me as of the date of my report.

I chalk that up to unrealistic expectations.

 

[Mr Rex]

 

[DJBanas]

[QUOTE="MASSAPP, post: 2862279, member: 151844"

I fully analyzed the transfer and disclosed what was garnered. Property not exposed to market,
[/QUOTE]

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming
the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and
the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both
parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a
reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms
of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale.

This transaction does not meet the definition of Market Value. Explain that in support of your OMV.

I am not a CG so I don't know if the definition is different for commercial but I won't think it would be.

 

[J Grant]

Hi appraisersforum folks!

I have a brief question about USPAP.
I appraised small warehouse for 2.5% below most recent sale of the property. Sale within 30 days of effective date. I fully analyzed the transfer and disclosed what was garnered. Property not exposed to market, tenant purchased from landlord, both parties had their own agents. Considered arms length.
I have been asked to explain why I came in lower and why I did not include a statement on why I came in lower in the report.
Is an explanation required by USPAP?
I am not sure what to say other than I think I did a good job, adequately supported my opinion......
what would you say? If anything...Be Blessed.

As others posted, comparing your market value opinion to a prior sale price is not required by USPAP, (only disclosure and analysis of prior sale ) However, many clients expect commentary, esp if the prior sale is recent.

That said, I avoid "higher" or "lower" as a comparison ( though the words might be used in other comments ) because higher than or lower than could indicate using one as a benchmark of market value to the other, which is technically an additional appraisal. Therefore, I use the word "different " in sentences that compare a sale price to my OMV.

Such as " The prior sale price is different than the appraisal opinion of market value. The prior sale price is a product of lack of exposure to open market and was between a tenant and landlord and its price may have been affected by terms between the parties. The market value opinion is the result of the appraisal SOW and includes using the most relevant recent sale comps in the sales comparison approach, and market rents in the income approach "

Note a sale between tenant and landlord is usually not considered arms length due to there being a relationship between the parties.

 

[George Hatch]

I had a lender send me a nasty letter because I came in below a 2012 purchase price. My sales were all within a few blocks of the subject and my report was well supported.

They wanted to know why my value was lower than the 6 yo purchase price (appraisal), and I said I would be happy to do a retrospective appraisal or review if they wanted that question answered. Otherwise the prior sale means nothing to me as of the date of my report.

I chalk that up to unrealistic expectations.

Some things we do for other people, and some things we do for ourselves.

I always try to anticipate that "prior sale" question - and the "low value" question - and I always try to answer it before they get around to asking it. Not because I'm trying to be better than the next guy but because it's strictly self-serving on my part to get out in front of their questions at a point when doing so only takes me 5 minutes than to risk having to come back 3 days later to answer it in an ROV that takes me an hour.

If you leave a door ajar it's inevitable that some people will try to walk through it. You always want to slam the door and cut their toes off so they don't even think about trying to use it.