This week, as promised, we continue to share insights on some common and important issues for VMG clients and vendors from The Appraisal Foundation Board Q&A newsletter. This time the topic tackles the hot button of appraised value versus contract price. The Appraisal Foundation’s October 28, 2014 publication shared the following question posed by an appraiser, and provided their answer to it.
I recently submitted an appraisal report to an Appraisal Management Company (AMC). The value conclusion in the report was below contract sales price. The AMC, acting on behalf of the client, sent me the following request:
“Discuss lack of support for the contract price, considering the subject’s features, any changes in market conditions between the contract and effective dates, the details of the contract, etc., which you believe may have contributed to the issue, if there is no apparent reason for lack of support of the contract price, state that within you (sic) report.”
Do I have to respond to this request to comply with USPAP?
“USPAP compliance does not specifically require the appraiser to respond to this particular request, but it does require that the appraiser analyze the pending sale and summarize the results of that analysis in the appraisal report.
An appraiser is not engaged for the purpose of supporting a contract price, but rather to form an opinion of, in this instance, the market value of the subject property. The appraiser must comply with the “Conduct” section of the ETHICS RULE, which states, in part:
An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests.
Standards Rule 1-5(a) requires the appraiser to analyze all agreements of sale (if available in the normal course of business). The Comments to Standards Rule 2-2(a)(viii) and 2-2(b)(viii) state, in part:
When reporting an opinion of market value, a summary of the results of analyzing the subject sales, agreements of sale, options, and listings in accordance with Standard Rule 1-5 is required.
If the above requirements have been met, the client’s request may already have been addressed.
If the appraiser has not met the requirements, then the client’s request is valid in terms of lack of disclosure of the analysis of the agreement of sale. As previously stated, the appraiser’s opinion of value should be supported, not the difference between the contract and the opinion of value.”
So, USPAP does not require an appraiser to “support” the difference in their opinion of value and a contract price. However, their opinion of value should be well supported and if all aspects of their opinion are supported, and a sales agreement and the listing history of the subject property have been properly analyzed, the answer to the “difference” question should be easy to identify.
As a service to our clients and the borrower, Valuation Management Group will continue to make such an inquiry of an appraiser when clarification is needed. However, it is not about compliance. It is about customer service to clients. Most appraisers, in VMG’s experience, understand the customer service side of their relationship with a client.
Valuation Management Group understands that lenders are faced with sharing not-so-positive news to the borrower regarding their pending purchase. The better a client can understand the facts and how an opinion is strongly supported, the better able they are to address it with their customer.
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We take the process from ordinary to extraordinary.