USPAP Question About Value Estimate In Relation To Recent Sale

[Deleted member 152047]

2.5% is pretty specific unless there was absolutely no support for the sale price. I try to give the benefit of the doubt to anything under 5%. Most of the time we simply are not that good. Its different in Resi or cookie cutter commercial where adjustments are straight-forward.

 

[glenn walker]

$500,000 Sale 2.5% =$12,500 - It would be rare for me to appraise a sale 2.5% below contract unless all my adjusted sales were lower than $500,000. I am not good enough to be within a 2.5%+/- so I can see why a buyer or seller would challenge the 2.5% especially when the tenant currently occupies and uses the building. ( Just My Opinion-Many Will Disagree )

USPAP- I don't believe this a USPAP issue but a clear and concise final reconciliation in your report would allow the reader and users to understand why and how you arrived at a certain point of value. They may or may-not agree but at least they know where that 2.5% difference came from.

Also reconciliation forces the appraiser to take a second look before hitting the send button. I always do a final review on my appraisal and pretend I am the banks reviewer, does my final point of value and reconciliation make sense and is it reasonable and can I defend it ?

Below are a few very basic reconciliation methods that I was given when just starting out, not the best and each appraisal can be different especially on commercial or industrial but it's hard for a buyer-seller or reviewer to beat you up too bad if they can see a range of values and how you arrived at your final opinion.


Reconciliation- Price $500,000

When $500,000 is supported In A Stable Market :
The comparables after adjusted indicate a range of $480,000 to $510,000 which adequately support the subjects contract price, hence the contract price of $500,000 is considered market value.

When $500,000 is supported in a strong or Increasing market :
The comparables after adjusted indicate a range of $490,000 to $520,000 which adequately supported the subjects contract price of $500,000 but due to increasing market trends, the higher end of the range being the most probable my final opinion of market value is $520,000.

Where $500,000 is not supported:
The comparables after adjusted indicate a range of $470,000 to $485,000 which "did not" adequately support the contract price of $500,000. The appraiser after considering differences in physical conditions, locations, lot sizes and other amenities, has arrived at a final opinion of market value of $480,000

 

[J Grant]

Glenn- the 2.5 % from post was referenced to a prior recent sale, not a SC ....

Your 3 reconciliation statements are problematical in that purpose of an appraisal is not to "supp port" a contract price , purpose of the appraisal is to support our own opinion of market value...

When our opinion of MV is same $ amount as or equivalent $ amount as a SC price then the SC price was more relevant as a value indicator.

 

[J Grant]

RE worded - Reconciliation- Price $500,000 Take out all the language about "supporting" a SC price !! A SC price could support our opinion of market value, ( not the other way around).

When $500,000 is supported In A Stable Market :
The comparables after adjusted indicate a range of $480,000 to $510,000 which adequately support the subjects contract price, hence the contract price of $500,000 is considered market value.

The adjusted value range is 480k-510k, the appraiser reconciled at 500k , the SC price at arms length terms and adequate market exposure was relevant as an additional value indicator.

When $500,000 is supported in a strong or Increasing market :
The comparables after adjusted indicate a range of $490,000 to $520,000 which adequately supported the subjects contract price of $500,000 but due to increasing market trends, the higher end of the range being the most probable my final opinion of market value is $520,000.

The adjusted value range is 490k-520k, the appraiser reconciled at 520k, because the market is increasing ( and subject is a superior upgraded home, I like to have additional reasoning if I opine highest or lowest ). I would address the SC price being lower than the OMV elsewhere in an addendum statement


Where $500,000 is not supported:
The comparables after adjusted indicate a range of $470,000 to $485,000 which "did not" adequately support the contract price of $500,000. The appraiser after considering differences in physical conditions, locations, lot sizes and other amenities, has arrived at a final opinion of market value of $480,000

The adjusted value range is 470k-485k, the appraiser reconciled at 480k. ( explain why, subject was mid range quality or most like the 480k sale ). I would address the SC price being lower than the OMV elsewhere in an addendum statement

 

[Deleted member 152047]

Glenn- the 2.5 % from post was referenced to a prior recent sale, not a SC ....

Your 3 reconciliation statements are problematical in that purpose of an appraisal is not to "supp port" a contract price , purpose of the appraisal is to support our own opinion of market value...

When our opinion of MV is same $ amount as or equivalent $ amount as a SC price then the SC price was more relevant as a value indicator.

That is not what Glenn was saying. Every appraiser needs to analyze the sale of the subject (and/or a contract). In the sales history section you will need to analyze the sale price or contract price and indicate whether it is reasonable or not based upon your market value conclusion. There is nothing wrong with reiterating this in a reconciliation. Especially, given that most people only look at the LOT or Reconciliation.

 

[J Grant]

That is not what Glenn was saying. Every appraiser needs to analyze the sale of the subject (and/or a contract). In the sales history section you will need to analyze the sale price or contract price and indicate whether it is reasonable or not based upon your market value conclusion. There is nothing wrong with reiterating this in a reconciliation. Especially, given that most people only look at the LOT or Reconciliation.

Agree. However, we still should not be making comments like . " The sales contract price was supported "....because while most reviewers will let it slide , it technically is incorrect, because we don't develop an appraisal to support a sales contract , we develop an appraisal to support our opinion of market value ( as part of our analysis we can conclude a SC price provides additional support to our market value opinion )

 

[J Grant]

18. My employment and/or compensation for performing this appraisal or any future or anticipated appraisals was not conditioned on any agreement or understanding, written or otherwise, that I would report (or present analysis supporting) a predetermined specific value, a predetermined minimum value, a range or direction in value, a value that favors the cause of any party, or the attainment of a specific result or occurrence of a specific subsequent event (such as approval of a pending mortgage loan application).

 

[Deleted member 152047]

I don't agree that the only answer is to say that the sales contract supports our market value conclusion. IMO it is fine to say it the other way.

Agree. However, we still should not be making comments like . " The sales contract price was supported "....because while most reviewers will let it slide , it technically is incorrect, because we don't develop an appraisal to support a sales contract , we develop an appraisal to support our opinion of market value ( If we analyze it we can conclude a SC price provides additional support to our market value opinion )

I agree that the verbiage could be better. I typically put in something like:

The subject is under contract for $500,000 ($250.00 PSF) and the contract price is consistent with my opinion of market value.

I have said things like: The contract price is consistent with, and supported by, the range of adjusted values. I don't see anything wrong with that, but I understand where you are coming from.

 

[gregb]

Pity the poor appraiser lacking a purchase contract.

 

[Deleted member 152047]

18. My employment and/or compensation for performing this appraisal or any future or anticipated appraisals was not conditioned on any agreement or understanding, written or otherwise, that I would report (or present analysis supporting) a predetermined specific value, a predetermined minimum value, a range or direction in value, a value that favors the cause of any party, or the attainment of a specific result or occurrence of a specific subsequent event (such as approval of a pending mortgage loan application).

I don't know where this cert statement comes from, but this is from AI:
My compensation for completing this assignment is not contingent upon the development or reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.