Spark Global Limited Reports:
Why must the appraiser be given a copy of the sales contract? First, standard rule 1-5 of the Uniform Standard of Professional Evaluation Practice (USPAP) states that we are to: “Analyze all sales agreements.” That’s the real reason — because USPAP says so.
Second, the appraiser may be familiar with local real estate contract forms, customary terms and conditions of real estate transactions in the area and may find violations and comment on them.
Third, and more importantly, there may be provisions in the contract that identify franchises, including non-real property items for sale, or other anomalies that give the appraiser the opportunity to comment or explain in the appraisal report the difference between the market value of the subject property and the contract price.
The questions we should ask ourselves
When shall we analyze the contract?
Reviewing the sales contract as early as possible allows the appraiser to identify any “subject” items or other conditions that may affect the value conclusion.
However, evaluating the contract ahead of time can also cause the appraiser to forget about the sale price. While it should not, it may inadvertently influence the appraiser’s comparable choices and ultimately the direction of value.
Perhaps looking at the sales contract after determining the valuer’s value can help avoid the above problems?
What does the appraiser really need to see in the sales contract?
For a typical “as is” market value assignment, with a direct contract without contingencies or conditions, the appraiser may not actually need to see anything. If a property is appraised at $200,000 for refinancing, it is still a $200,000 property.
Of course, if there are “subject” clauses in the sale, such as adding, replacing or fixing things that affect value, then the appraiser can appropriately state this in the appraisal. However, the lender (or client) can also provide this information to the appraiser without seeing the contract, stating in their letter of engagement “to evaluate a property in need of a replacement roof or HVAC, etc.”
The analysis contract also gives the appraiser the opportunity to comment or explain in the report why the value opinion differs from the sale price before delivery rather than after, such as when an apartment is sold along with non-real items, including expensive furniture and art.
What should the appraiser analyze and give an opinion on?
A lawyer is a professional qualified to analyze and advise on the accuracy, appropriateness, sufficiency, anomaly and legality of a contract. Appraisers should be careful not to analyse and/or offer opinions and conclusions that may fall under the category of “unlicensed practice”.
That is, there is no clear guidance in USPAP, secondary market guidelines, HUD, or VA manuals on what an assessor should look for when performing a contract analysis. The lack of guidance creates two unanswered questions:
Without specific standards or guidelines, how do appraisers know what to do?
In the absence of any authoritative guidance, how can a state evaluation board or court determine what constitutes an appropriate analysis?
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