USPAP Question About Value Estimate In Relation To Recent Sale

[Terrel L. Shields]

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.

It is simply more than prudent to explain why a previous sales price is higher (or lower) than the current price. Explain what changed, or why the sale was not arm's length. I also may differ from the USPAP gurus above who know more about this document than I, but there is a Std 2 requirement to summarize the reasoning that supports the analyses, and a summary of the results of analyzing the subject sales is required (Std. 2-1 a (viii) and that this is in accordance with Rule 1-5. So yes, I think you have not addressed a USPAP issue.

 

[J Grant]

Since you framed your question as a USPAP issue,...an appraisal is an opinion of value
Note USPAP says an appraisal can ( also ) be an opinion of value as a relationship to a numerical benchmark.

When a client asks, why is your opinion of value lower than, or higher than a prior sale price? They are unwittingly asking you to do a second appraisal, aka compare your value opinion as a relationship to a numerical benchmark ( benchmark is the prior price )

Which is not the same thing as the USPAP requirement to as a stand alone, analyze a prior sale. Analyzing a prior sale in and of itself is not an appraisal.
Therefore, be careful how you answer the client's request ( my post #9)

Rather than state your opinion of value is lower than X $ or higher than X $, you can restate the amounts of each , which is not an opinion of lower or higher but states facts.

" Prior sale price was X $. To the extent appraiser could learn about circumstances of this sale, it was an arms length transaction and the price may have been affected by seller paid closing costs. It occurred in a different market cycle where prevailing prices were higher ."

"Effective date opinion of market value was developed in the appraisal using recent and past year closed sales as well as listing and pending inventory to opine an opinion of market value reflecting current market conditions ."

 

[DWiley]

Since you framed your question as a USPAP issue,...an appraisal is an opinion of value
Note USPAP says an appraisal can ( also ) be an opinion of value as a relationship to a numerical benchmark.

When a client asks, why is your opinion of value lower than, or higher than a prior sale price? They are unwittingly asking you to do a second appraisal, aka compare your value opinion as a relationship to a numerical benchmark ( benchmark is the prior price )

Which is not the same thing as the USPAP requirement to as a stand alone, analyze a prior sale. Analyzing a prior sale in and of itself is not an appraisal.

Therefore, be careful how you answer the client's request ( my post #9)

Good comments. Appraisers often unwittingly provide an unsupported an undocumented second appraisal by providing comments like, "the last sale was an REO sale at a below market value price." This is an appraisal opinion, with value expressed as a relationship to a benchmark (the prior price).

One could provide the same info without crossing the line into providing a value opinion - e.g. "When the property last sold the seller was a lender that had acquired the home via foreclosure. The parties involved indicated a desire to sell in a short period of time with limited marketing efforts."

 

[Terrel L. Shields]

I am not sure I buy the appraisal within an appraisal argument. Some sales are obviously below or above market. I see no reason why not to say so, perhaps with the caveat "it appears to be..." That was the caveat taught me as a young geologist. We can't see 10,000 foot down, we are making an educated guess. Likewise I cannot read the mind of buyers and sellers from the past. And for many properties the history is a nothing burger anyway. Like too many things in USPAP we are left making comments to a negative because we have to. "Yes, we have no bananas today" "Yes, it is a 50% rabbit sandwich. One rabbit, one horse."

It goes for USPAP and FHA, Fannie, etc. too often some of these rules were created to solve a problem after it is too late. History is typical. Originally a response to failing to ID flips pre-crisis, it really serves very little real purpose now. And still won't stop an appraiser from glossing over negatives to "enhance" values that are, to say the least, optimistic.

 

[J Grant]

I am not sure I buy the appraisal within an appraisal argument. Some sales are obviously below or above market. I see no reason why not to say so, perhaps with the caveat "it appears to be..." That was the caveat taught me as a young geologist. We can't see 10,000 foot down, we are making an educated guess. Likewise I cannot read the mind of buyers and sellers from the past. And for many properties the history is a nothing burger anyway. Like too many things in USPAP we are left making comments to a negative because we have to. "Yes, we have no bananas today" "Yes, it is a 50% rabbit sandwich. One rabbit, one horse."

It goes for USPAP and FHA, Fannie, etc. too often some of these rules were created to solve a problem after it is too late. History is typical. Originally a response to failing to ID flips pre-crisis, it really serves very little real purpose now. And still won't stop an appraiser from glossing over negatives to "enhance" values that are, to say the least, optimistic.

You can personally choose to "Buy " into it or not, but it's right there in USPAP.- a definition of an appraisal is a value opinion as a relationship to a numerical benchmark.

Therefore if you say, this price was above or below "market value" it's an appraisal...the fact that a client usually does not flag it does not change this. Clients unwittingly ask for these kinds of "free" appraisals since 1) they may not realize the implication of what they are asking for 2) Even if they realize, a client does not have to comply with USPAP, only appraisers do. Therefore a client can ask all they want why did you appraise lower higher than X$ with no consequence to them.

"Appears to be"...works for geology but for appraisals it's a weasel word unless explained such as appraiser could not get verification since nobody would respond to inquiries..

 

[ucbruin]

"Appears to be"...for appraisals it's a weasel word....

Depends...

 

[Gobears81]

The tenant is often the entity most willing to pay the highest price for some properties, especially if it's not a property/ market that would appeal to a passive investor. They don't need to move and have an established business at that location, so 2.5% over market might not be such a tall order for them. YMMV of course.

 

[J Grant]

Yes that explains why tenants often might pay a higher price...what does YMMV mean?

 

[Gobears81]

Yes that explains why tenants often might pay a higher price...what does YMMV mean?

Your market may vary

 

[Elliott]

The lender wants to know why you didn't hit value. "What's wrong with you?" After gritting my teeth for a few moments, I've found a brief explanation and comment on the limited data, rising interest rates, or the leather rendering plant located next door is usually adequate.