Stand Your Ground
Forty-five years ago when I decided to announce to the
family that I wanted to be an appraiser, my father-in-law, a crusty ole farmer
from northern Indiana, said the appraisal business was nothing more than a
scam. “I just bought my neighbor’s farm”
he said. “He and I agreed $1,000 an acre
was fair. Why should I pay some
appraiser to tell me it is only worth $900 an acre?” A good question.
My answer then is close to what I would say today. My job as an appraiser is to help the lender
understand what the typical buyer would pay for the site if, heaven forbid, the
borrower never makes that first payment.
The lender doesn’t care what the borrower paid, or what it cost to
replicate, or what conditions were included in the transaction – they just want
to be assured that if they get the property back, they can sell it for enough
to pay back the debt.
Actually, the question is just as pertinent today as it was
then – except the typical scenario is the property has been listed for
$150,000, there is a full price offer, a bidding war erupts, and before the
dust settles, there is an accepted offer of $165,000. A detailed comp search shows there has never
been a sale in the neighborhood of over $145,000 and the best, most recent,
most proximate comparable sale is the house next door that just sold for
$140,000 - $25,000 less than the accepted offer.
A quick call to both brokers involved indicate that, yeah,
this is a bit unusual, but hey, there are plenty of supporting sales outside of
the neighborhood that have closed over the last several years. Surely, if you look hard enough you’ll be able to
make this work.
No. It is not our job to help make anything “work”.
The answer, again, is that we appraisers are looking for sales
that support what the value should be – not what the price was. We are bound to
find the “the
most probable price that 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.”
Bidding the final price up to something like 15% to 20% more than
the list price is not typical and, in all likelihood, represents some undue stimulus. Hot seller markets push
prices but not necessarily values. Stand your ground. Appraising within the basic principles not
only protects us, it protects our clients.
