Appraisal Update – July
July 24, 2015 |
Tim Detty, CDEI
Certified General Real Property Appraiser
AQB Certified USPAP Instructor
Hondros College Appraisal Lead Faculty
Senior Editor, Appraisal Programs – Hondros Learning
Recently, I have been receiving numerous questions regarding revision requests received from lending clients and Appraisal Management Companies (AMC). One question in particular that is frequently received, and has also been a hot topic in appraisal forums on social media, is how to respond when the appraisal does not support the contract sales price, and the client or AMC requests further commentary for the reason the sale price was not supported. Or, the request may ask for the appraiser’s analysis and commentary for why the appraiser’s opinion of market value is different from the contract sales price.
The Appraisal Standards Board addressed the topic in Q & A #8, from the October 28, 2014 USPAP Q & As. Since appraisers, in general, have been very busy the past several months, and the Q & As are sometimes overlooked, the Q & A is reproduced here in its entirety.
2014-08: APPRAISAL DEVELOPMENT – SUBJECT PROPERTY SALES HISTORY
Value Conclusion Below Contract Price
I recently submitted an appraisal report to an Appraisal Management Company (AMC). The value conclusion in the report was below the contract sale price. The AMC, acting on behalf of the client, sent me the following request:
“Discuss the 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 the lack of support of the contract price, state that within you report.”
Do I have to respond to this request to comply with USPAP?
USPAP compliance does not specifically require the appraiser respond to this particular request, but it does require that the appraiser to 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 Rules 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 in essence, it the appraiser has properly analyzed the agreement to sell, and properly noted any atypical conditions found in the contract, or discovered in their analysis regarding the common conditions of market value or that of an arm’s length transaction, the appraiser has satisfied his USPAP obligations, and it would not be necessary to attempt to determine or comment on why there was a difference between the opinion of market value and the contracted sales price.
The USPAP Q & As are posted on The Appraisal Foundation’s website at: www.appraisalfoundation.org. The Q & As may be found by clicking on the Appraisal Standards Board tab.