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Meatloaf

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Reply with quote  #1 
I have probably done about 3 updates my whole career.  I have never had one where I marked that the value had declined.

In july I did an appraisal on a house that was under contract for $43000.  I appraised it for $52000.  I am asked to do an update.  There are several homes in the subdivision owned by the same seller as the subject and two of them are currently under contract.  One is under contract for 47000 and is identical to the subject and the other is listed (i don't know the contract price) at 50000 and is about 100 sf larger than the subject.  Then there was a sale in 07/2017 shortly after I did the appraisal that is similar overall but I cannot verify the interior condition (I believe it to be similar) that sold for $40500.

No matter what, the current value has to be less than $52000.  It is still likely higher than the contract price at $43000.

My question is this.  All the bank really wants to know is whether the house is worth more than the contract price and the only reason they ordered an update instead of an appraisal was to save money (I charged 400 for the update and 545 for the original report).  So... Do I put a comment in my update that although the value has declined it is still likely higher than the contract price?  Or leave it alone and let them order a new appraisal?

The borrower isn't a rich person... I hate to see them spend more money than they have to.

Am I violating any USPAP guidelines by making a statement that the current value is likely higher than the contract price? 

What would yall dO?

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BillDing

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Reply with quote  #2 
You can state what you want on it.  It is an appraisal, so make sure you summarize it and have a complete file for it .
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BillDing

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Reply with quote  #3 
Prior service statement is required. I like to put a statement saying 1004D is an extension of the original service (even though it is a new assignment) to cover all USPAP requirements. You want to incorporate the prior report by attachment or reference.

Did you do an exterior inspection?  You should summarize your findings, as well.

The 1004D form is not USPAP complaint by itself.
  1. At a minimum, I advise it has to be augmented by:An updated discussion of the market (even if there has been no change, the market conditions have to be analyzed).
  2. A summary of the approach used to value the subject (in this case, it is usually the SCA. Just checking the box is not good enough; one has to provide enough data, analysis, and summary to meet the 2-2(a) requirement. While one doesn't necessarily have to use a grid, one would have to identify the sales considered and discuss how they were analyzed so that the credibility of the analysis... in this case the benchmark value conclusion... can be evaluated).
  3. A new, signed certification.

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RubberStamp

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Reply with quote  #4 
The market can decline but you can also analyze it and give it a reason why it "appears" to be declining by strict data analysis but a deeper look could possibly reveal other factors such as seasonality, or distressed sales, or less upgrades..  etc.   Then you mark it as not declining then explain away your rationale. I wouldn't do it unless you feel the market is truly not declining.  Few are right now.  But that silly 1004MC loves to point out seasonality. 

I had to do one like that this year and it was an anomaly due to the subject's condition vs. homes recently selling in lesser condition.   That 90 day block of time can be very misleading if the market has little data and anomalies are abundant.  I always draw my boundaries good and wide for this reason.  

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We argue this: Meanwhile the agent's assistant just did 5 unofficial appraisal inspections they paired with a Zestimate and granted 90% LTV - all guaranteed no buy back.
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BillDing

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Reply with quote  #5 
Quote:
Originally Posted by RubberStamp
The market can decline but you can also analyze it and give it a reason why it "appears" to be declining by strict data analysis but a deeper look could possibly reveal other factors such as seasonality, or distressed sales, or less upgrades..  etc.   Then you mark it as not declining then explain away your rationale. I wouldn't do it unless you feel the market is truly not declining.  Few are right now.  But that silly 1004MC loves to point out seasonality. 

I had to do one like that this year and it was an anomaly due to the subject's condition vs. homes recently selling in lesser condition.   That 90 day block of time can be very misleading if the market has little data and anomalies are abundant.  I always draw my boundaries good and wide for this reason.  


Absolutely spot on!  Seasonality is not a decline and MLoaf should really study the market, not just a few sales that may be just a spike. And for God's sake, don't go by the 1004MC!  Most markets aren't in decline...but I realize that some could be. I would also make real sure that you contact both agents on those new sales verify the conditions of those sales to see if there were any motivations or other factors that may have caused a lower price.

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Meatloaf

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Reply with quote  #6 
I think the sales price of the house I am doing the update on has affected the prices of the more current pending sales as well as the most recent sale.

Same agent on all sales.

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BillDing

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Reply with quote  #7 
Quote:
Originally Posted by Meatloaf
I think the sales price of the house I am doing the update on has affected the prices of the more current pending sales as well as the most recent sale.

Same agent on all sales.

"I think" is not good enough.  You need to verify these sales and talk to the agents.

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Nomad

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Reply with quote  #8 
If you think it's probably at $47 now I wouldn't say it has declined. Less than 10% on a house in this price point is nothing given all of the unknowns regarding comparable sales.
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Meatloaf

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Reply with quote  #9 
The form asks has it declined?  it doesn't say how much.

A decrease of a dollar is a decline.

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Nomad

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Reply with quote  #10 
What my point is is that it still could probably sell for 52. Too close to call w/ quality of data we work with. If anything maybe just a little fluctuation
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MEP

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Reply with quote  #11 
Do not allow one seller or buyer to establish (value in) the market...those sales are not full market transactions...that is why we are supposed to find a competing property for new development appraisals. 

That is a credible reason to leave the development for sales.

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