Have you ever had an appraiser value a home to the sales contract price?

By
Managing Real Estate Broker with ERA American Real Estate

I firt wrote a post tonight Should an appraiser ask for a copy of the sales contract to talk about the reasons an appraiser may need a copy of the sales contract.

The second post I wrote tonight Does an appraiser need to see the sales price on a contract or do you black it out? to talk about the most common answers I have seen to the topic of the sales contract with the priced blacked out or if the appraisers need to see the sales price. I wanted to give a couple comments from what I had found on similar post from a couple appraisers on ActiveRain.

 

This post I am asking Have you ever had an appraiser value a home to the sales contract price?

 

 "I asked the same questiion in my USPAP class. In theory, the appraisal value is not based on the contract price."

"It is correct appraisal procedure to determine that the contract price establishes the upper end of value, unless it is a ditress sale, or a sale between reliatives.

If you are buying a house for $100,000, when you think that it is worth $150,000, you need to look at some red flags . . .

Why is the person selling to you for $100,000? Why not sell it for $150,000? There is a reason. Most likely it is not worth $150,000. I am sure that the seller and the listing agent are telling you what a great deal you are getting, and that you will earn $50,000 by signing the contract.

Bzzzt. (Scam Alert)

The fact that you are paying $100,000, and no one else came in before you and offered $150,000 or $140,000 or even $110,000 for it, shows that a reasonable buyer will not pay more than $100,000 for the property (Assuming that you are a reasonable buyer.) Maybe if you backed out of the deal, they may possibly only be able to get $90,000 for it.

So, the short story is. . . if the contract price is an arms-length transaction for $100,000, odds are that value is not more than $100,000."

 Kenneth Tamblyn

 

 

As for an appraiser appraising the house at the contract price, the appraiser is violating the Ethics Rule of USPAP by appraising the house to a contract price and not market value, if the market value is something different from the contract price. Many old school appraisers or trainees from old school appraisers do it this way because that's they way they've always done it. A house should be appraised for what its worth and not the contract price, even if that value is less than or more than the contract price.

I hope this helps answer some of your questions.

 
Kenneth Miller, NW Ohio FHA Appraiser (Miller Appraisals)

 

 

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Brandon Jordan, Realtor,E-PRO,ERA American Real Estate

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Rainer
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Donald Tepper
Long and Foster - Fairfax, VA
DC area investor helping heirs of inherited homes

I can't speak to any ethics code that an appraiser may follow, but I do know that it looks awfully suspicious when an appraisal comes back--to the penny--at what the sales contract price is.

And I know that the 6 times I've bought and the 4 times I've sold my personal residences, the appraisal has come back, each time, to the penny of what the contract price is.

The only way that accurately reflects market value is if you take the approach that: "This is an arms-length agreement between buyer and seller, so--by definition--the agreed-upon price must be the market value price."

On another real estate web site--one aimed more at consumers--this questions comes up periodically. It's along the lines of: "I'm buying a home for $200,000. I thought I was getting a good deal. The comps my agent showed me supported a higher price. I know the same model has sold recently for more, and it wasn't in as good a condition. But now the appraisal has come back for exactly $200,000. Should I be worried?" And my answer is: "No. It means your home is worth at least $200,000. That's how appraisers work. You only needed to be worried if the appraisal came back for less than $200,000."

Still, I don't think that practice does much to help the reputation of appraisers.

Aug 29, 2010 04:27 PM #1
Rainmaker
696,201
Brandon Jordan
ERA American Real Estate - Crestview, FL

Donald that is a well crafted comment. Thank you for the addition.

Aug 29, 2010 04:46 PM #2
Rainer
90,077
Wade Kawahara
Dominion Real Estate Partners, LLC - Phoenix, AZ

Brandon, appraisers used to do this all of the time.  Now it seems like they look at the price and try to find ways not to justify it.

Aug 29, 2010 05:22 PM #3
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