Purchase Season Protection

Market Value, Challenging Scenarios & Purchase Season Protection

Our function as an appraiser is to estimate the market value…

Sale Season 2017

We are entering the sale season and the market is beginning to pick up. The velocity of the upcoming sale season will hinge on inventory; currently there is an obvious shortage in many submarkets. Be prepared to handle challenging scenarios. Strong demand and low inventory can lead to multiple offers and escalation clauses. Market predictions for this year forecast a higher volume of sales from 2016. Keep the following USPAP Standards as well as the Definition of Market Value, as defined in your report, in mind when contemplating purchase appraisal assignments.

  • Standards Rule 1-3 (a) states that an appraiser must identify and analyze the effect on value of economic supply and demand as well as market area trends when he/she is developing an opinion of market value.

Comment: An appraiser must avoid making an unsupported assumption or premise about market area trends, effective age, and remaining life.

  • Standards Rule 1-5 (a) states that when the value opinion to be developed is market value, an appraiser must, if the information is available, analyze all agreements of sale, options and listings of the subject property current as of the effective date of the appraisal. The corresponding comment is found in Standards Rule 2-2 (a)(viii):

Comment: An Appraisal Report must include sufficient information to indicate that the appraiser complied with the requirements of STANDARD 1. The amount of detail required will vary with the significance of the information to the appraisal.

The appraiser must provide sufficient information to enable the client and intended users to understand the rationale for the opinions and conclusions, including reconciliation of the data and approaches, in accordance with Standards Rule 1-6.

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 Standards Rule 1-5 is required. If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.

Market Value – Refer to page 4 of the URAR form, the Certifications Addendum page of the non-lender form or the Certification section of your narrative report for the definition of market value. Paramount to this definition is the context established in the first phrase – “The most probable price”.

  • Market Value – The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus.

Our function as an appraiser is to estimate the market value of the real property in a manner that is independent, impartial and objective. If the subject sells in 1-3 days, was it listed below market or is there a shortage of inventory? If there are multiple contracts per the listing agent, request them for review and summarize your analysis in your report. Regardless of your conclusion of value, whether it is above, below or at the contract price, you need to summarize the results of your analysis in a way that enables the client and intended users to understand the rationale for your opinion of value.

VaCAP Board
Image credit flickr - Ian Muttoo
VaCAP Board

VaCAP Board

Coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth.

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7 Responses

  1. Avatar Ralph says:

    When the market is in shortage and increasing it is imperative to analyze comparable PENDING SALES, (same as in a declining market like 2007-2008) as they typically are the best indicator of the current market trends. The property has tested the market likely received several offers and is under contract, in markets where homes are selling in a week or less and often above list price, (some markets I do sell at 105% SP to LP ratio) appraiser’s should be applying a positive adjustment to the pending sale price and this is very easy to prove, same as a negative adjustment in a declining market.

    I hear horror stories from brokers who tell me they have appraiser’s screaming at them insisting they cannot use pending sales and then falling on their USPAP sword, but by not using them to offer additional support and then explaining in your reconciliation why you did what you did, the appraiser is creating a miss-leading report, which in itself is a USPAP violation.

    Many reports I review where the appraised value comes in below the purchase price, the appraiser is simply lazy and just wants to use sales which closed 6-12 months ago and were often under contract 3 months prior to that in a completely different market. The appraiser checks stable, supply and demand in balance and DOM 3-6 months. When I take 5 minutes extra to actually analyze the market it goes like this, Shortage/DOM under 30 days, 1 month of inventory. Unfortunately too many appraisers just want to stick to 6 months, 1 mile and call it a day and if you question them they cry the USPAP Wolf, but let me ask my fellow appraisers, if you were to put your house on the market to sell it tomorrow, would you pay MORE attention to what sold a year ago, or what your current competition is and what is under contract right now. (think like a seller!) Just my 2 cents. Hope every has a busy spring!

    • Baggins Baggins says:

      Cash drives price and subsequently value, not credit.  It is not the lenders responsibility to extend a higher loan amount so that a buyer can best the competition in a competitive market.  The buyer with cash contribution can set the new high, the rest of the 98% ltv borrowers sit on the sideline and are limited to confirmed sales of similar properties for their maximum prequalification for that particular home.

      From my template:

      Estimated valuation in sporadic markets without clearly defined benchmarks, is also based on overall buyer opportunity, as the subject property and comparable properties, (active, uc, or sold), relate to the principal of substitution. The appraiser includes specific commentary regarding adjustments, comparable selection, historical analysis, and other issues relevant to the ethical development of the appraisal report. Market valuation by an appraiser is a best estimate, based on as recent as possible applicable sales. The value opinion is not a price or value guarantee and is an opinion developed by the appraiser after analyzing comparable market data. Best of ability methods are used by the appraiser for report development. The approach is to be flexible and open minded, while maintaining a logical and well informed approach to comparative market relationships amongst filtered and specific market examples. Data is manually reviewed in each and every appraisal assignment, including reviewing listing histories and Realtor pictures if available. Quantitative and Qualitative approaches may be used, and logical appraisal development is not an exact science.

  2. Mike Ford Mike Ford says:

    Good article and excellent comment from Ralph. I’m supposed to analyze the market’s perception of market value as defined [period]. IF an intended users policies or special requirements put artificial constraints on that opinion then it’s my job to explain the impact. In the end my opinion of market value is going to be as defined and based on ALL available relevant market data.

    I’ve followed a habit or practice since my first days as an appraiser (school of hard knocks by a mentor who used to say “now prove there can be no other conclusion”). Admittedly you won’t find it in text books, but in [probable] disputed values I’ve always done my own “Tidewater” reconsideration.

    If I believe the value is “X,” and “Y” was expected (based on contract and review of the subject listing) then I make darn sure that I have in fact used the most relevant sales and that I have NOT overlooked any pending sales that would be relevant. Then I double check my results and seriously consider the implication of the cost approach and if performed, the income approach.

    When all that is done, then I go back over the entire report with a fine tooth comb. Reason is simple. A value dispute has the greatest potential of generating a regulatory complaint. Even after I know my value opinion is solid I now want to double check to be sure my work will pass muster under the strictest reasonable interpretations of USPAP.

    I’m not afraid to break someone’s deal. I ‘ve done it throughout my career as we all have. But, when I do I am mindful of what we used to call fiduciary responsibilities. My client is my client but “the public” also has a vested interest in me performing my job properly.

    Don’t believe me? Read FIRREA and USPAP again, along with your probable state regulations. Public Trust is a high consideration. Buyers, sellers, agents (both sides), loan officers, lenders and ultimate investors all rely on me to do the job right the first time.

    I try to perform all appraisals competently, but it just makes sense on broken deals to take a little extra time to make sure nothing has been overlooked because state regulators have as much time as they want (generally up to a year) to find that tiny technical mistake ‘we’ didn’t think was important.


  3. Avatar Koma says:


    This is a good article along with both comments also being good. The one thing I have concern with is the last paragraph of Ralph’s comment of what your current competition is and what is currently under contract and to “think like a seller”. Now understand I do not pigeon hole myself with tunnel vision, but I also realize that 80% of all listings do not sell for their initial list prices due to the fact they are listed too high from the start. With me when I perform an appraisal for a private client before they list their property for sale then they give it to a realtor and he/she convinces the owner to go 25-30% higher than my opinion of value. What happens then the property sits longer and they end up dropping the price once or twice 25-30% lower.

    So when the markets are increasing/decreasing they receive +/- adjustment with the data. I make sure to have at least one possibly two comparables that have sold within 30/60/90 days depending on the severity. Even if they are not the most similar I would put them in as Comp 4/5/6.

    Make sure you look at your market stats monthly/quarterly to keep up on what’s going on. Like Ralph says “Don’t be lazy”!

    Just my thought and thanks for listening.

    • Mike Ford Mike Ford says:

      Agree. In my market I don’t usually see 80% over priced but its a local thing I think. Price a property much above 105% of what the market thinks its worth and chances of a sale drop dramatically. Price it 110% high (out here) and its going to sit for six months and may never sell without price adjustment.

      Like all have said in different ways…we just need to be professional and not get lazy.

  4. Baggins Baggins says:

    With the continued proliferation of amc’s whom constantly take advantage of appraisers, I’m losing faith the appraiser valuators have any sense of what a fair deal is.  Would you have faith in a stranger to provide a valuation position if you knew they had to undercut the competition and take an unfair deal for themselves in order to provide that service?

    Escalation clauses and bid wars are like amc’s asking for appraisers to input their fees.  It’s code word for please take advantage of me.  Tell me with a straight face that a buyers agent will really police the terms of that deal each and every time. Just as amc’s will race straight to the lowest bidder and ignore all other factors, so will the majority of clauses actually find a way to escalate.

    Congratulations you’re a winner!  Oh wow, I never thought that by offering a variable $Xk over listed price that I would actually secure this deal. And at the peak of my clause no less, I guess I’m just lucky.

    In other news, used original lackluster manufactured homes are tracking well above replaceable retail brand new upgraded off the shelf pricing of even larger models.  You can’t make this up, but you can laugh at the stupidity of the agents and their customers for agreeing to these undeserved mark ups.

    I’ve never seen a bid or escalation clause that I liked, not now, not ever.  It’s poor form and should be reserved only for irreplaceable properties with unique value in use to the buyer.  Otherwise it’s a fools errand to put in an escalation clause.  Betcha 10 bear skins it will escalate…


    • Mike Ford Mike Ford says:


      My friend who is a broker and owns a mortgage banks bought a condo that way about two years ago. At the outset the agent played the “I have multiple offer and you need to go over asking price game.”

      I told friend he was already at upper end of range at asking price. His offer was being bumped $100,000 (10%). Now he DID have the issue with his wife wanting that particular unit because its close to his office and her parents condo when they visit from overseas.

      Still. If I were looking and the agent told me there are multiple offers I’d keep on looking…telling him or her to give me a call if the seller decides they want to put the property back on the open market again.

      Also, IF I think the agent if not being honest about the multiple offers I’d just go ahead and try to contact the owner and ask them direct. No rule says a buyer cant do that.


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Purchase Season Protection

by VaCAP Board time to read: 2 min