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Why Do Appraisers Need To See The Sales Contract?

By Rick Phillips

Real Estate Appraiser with Appraisals Guaranteed 4001012704

June 11, 2009 06:16 PM

Why do appraisers need to see the sales contract?

An agent called me up this morning and asked me this question. I didn't think 2 seconds before uttering a reply "because it's on the form."

Duh!

"But why?" he pressured me. "Why do I have to show the appraiser a number? I want to know the value. I don't want to tell him the value in advance."

So I refreshed my coffee and thought about it some more. Appraisers have become so numb to this request for the contract that they don't even think about it. There are two boxes: "I read..." / "I did not read..." Appraisers are accustomed to checking that YES box.

Try checking the other one:

"I did not read the contract because it was blurry."
"I did not read the contract because it was not sent to me."
"I did not read the contract because I had a hot date with Angelina Jolie!"

That appraisal is definitely coming back for a correction at some point, and appraisers hate making corrections...

Well, I finally reasoned that if the agent wanted, he could withhold the contract from the appraiser and just demand a value. I can see the conversation:

Appraiser: "What's the sales price?"
Agent: "Not telling!"

This is OK, though. The appraiser does not need to know the contract price to determine market value. He needs to know what other items of value are in the sale: is there a boat and trailer in the back yard? Is there a rent-back period?, etc...

And the appraiser must determine if the sale is an arm's-length transaction. That is, is brother 1 selling it to brother 2 at a higher price that what is typical market value in order to not get foreclosed upon? Is dad selling it to son at a major discount?, etc....

But another option for the agent is to hire his own appraiser. It would not be usable by the bank, but it would demonstrate any manipulation or mistakes on the part of the first appraisal.

So there's the answer: Why do appraisers need to see the sales contract? Eventually, yes, they need it to complete the form and verify their analyses, but immediately, well, they don't need to see it at all.

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Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

Rick: It never occurred to me that the appraiser would NOT see the sales contract. The appraisal is NOT being made for the buyer, it is being made for the lender. If the lender is not completely sure that all due diligence is being followed... they may not approve the loan. I very much disagree with this agent. Sounds like a newbie.

Jun 11, 2009 06:43 PM

Richard Dolbeare

Inactive - Wailuku, HI

Living the Hawaii Lifestyle

Well that answers a question I had which is under the new appraisal regs, are they precluded from knowing the contract price. Clearly the answer is that they continue to know.

Jun 11, 2009 07:56 PM

Eilean Foster

Keller Williams Realty Atlantic Shore - Egg Harbor City, NJ

Real Estate Agent

But playing "Devil's Advocate", having the contract price known prior to the appraisal; wouldn't that possibly cloud the judgment of the Appraiser? Back to the days of "How much do you need this property to appraise for?" ....???

But! We are ethical people in an ethical profession - Right!?

Really sounds like the same sort of paranoid attitude about the "pre-approval letter"! "Oh no, the seller can not see how much I am actually approved for - they will hike up the price!"

*Ethical*, that is the bottom line of all of our activities - Right? Right!

Jun 11, 2009 08:15 PM

Fernando Herboso - Associate Broker MD, & VA

Maxus Realty Group of Samson Properties - Clarksburg, MD

301-246-0001 Serving Maryland, DC and Northern VA

To make sure they don't make a mistake and blow the deal.. it is clearly a subdue message to arrive at the sales price

Jun 11, 2009 08:50 PM

Jim Hale

ACTIONAGENTS.NET - Eugene, OR

Eugene Oregon's Best Home Search Website

In getting an appraisal (paid for by the buyer), the lender is basically just asking one old question and or more recent question:

Will we be doing something stupid if we approve this home loan?

Is there any reason we will not be able to sell this loan on the secondary money market?

If appraisers never saw sale agreements, a lot less real estate would be sold.

Jun 11, 2009 09:11 PM

Richard Iarossi

Coldwell Banker Residential Brokerage - Crofton, MD

Crofton MD Real Estate, Annapolis MD Real Estate

Rick,

For me the question is not whether the appraiser did, or didn't see the sales price, rather, would it have made a difference in the valuation.

Rich

Jun 11, 2009 11:00 PM

Harry F. D'Elia III

WEDO Real Estate and Beyond, LLC - Phoenix, AZ

Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

This has become an issue in many markets like Phoenix. I have witnessed many deals gone bad because of the appraisal. I even pulled comps for the appraiser in a couple of my deals. I am very conservative and still was higher than the appraiser.

Jun 11, 2009 11:06 PM

Rick Phillips

Appraisals Guaranteed - Alexandria, VA

Expert & Customized Valuations

Karen,

You're correct, the appraisal is for the lender, but the buyer is one of the intended users. The agent is a broker--in business for years. It was a valid concern, and he had just received an appraisal that met a sales price, exactly.

As for "may not approve the loan..." You're correct there too. They, the bank, most certainly will demand an update to the appraisal with that little "YES" box checked. My point was that it doesn't have to happen first.

Richard,

The new policy with regard to appraisers affects us all greatly, but it doesn't have anything to do with whether or not the appraiser sees the contract first or not.

Eilean,

It's not so much ethics in this case. The agent told me, and I quote, "I want to know what my client could sell this place for, tomorrow, next week, if, say, he lost his job. I want to know that price."

Fernando,

I don't know what the say. The industry relies on appraisers to not "kill deals..." The bank relies on the appraiser for the market value so they can make their decisions. The buyer relies on the appraiser to know he's not upside down the moment he takes over the keys. The market value ought to come from the market.

Jim,

Your first two statements are on the money. Bingo! Your last, though, I suspect anyway, that even you don't believe, if you pour one more coffee anyway. That is, the exact same amount would be sold ... it would just be different houses. This agent's clients has another house ... what appraisers call "a substitute," and if there's anything wrong with this deal, he wants to walk over and snag the other one. If appraisers never saw sale agreements, and values came in lower, then buyers would buy other, substitute houses.

Rich,

I think most appraisers look at the market value.

Harry,

B.S. -- Appraisers don't kill deals. Inflated values kill deals. Appraisers provide an indication of the true market value for the home. If the appraiser made a mistake, call him out on it. If you have to, get a second appraisal.

Jun 12, 2009 12:58 AM

Anonymous

Steve Tadevich

The appraiser, seller or realtor do not set the value. The market (buyer does). The appraiser's job is to verufy for the lender that a reasonable and fair price was paid so the lender is protected.

Sep 05, 2011 06:25 PM

Why Do Appraisers Need To See The Sales Contract?

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