Why We Ask for the Contract
by Stan Choate, Appraisal Tech / Valuation Associate
Whenever we are hired to appraise real estate under contract for purchase, we always ask our client to provide a copy of the contract or the major details of the transaction, like sale price, closing date, and the parties involved. While most of our customers oblige us by sending the purchase contract or the major details, some have refused, delayed, or protested that we should not see the contract, for fear that it will compromise our unbiased, objective opinion of value. To allay the fears of such clients, we want to explain why we ask for a purchase contract and how we use it.
The first reason that we ask to see the purchase contract is that regulations require us to ask. The Uniform Standards of Professional Appraisal Practice (USPAP) require appraisers to investigate current listings, options, and purchase contracts, as well as past sales of the subject within three years of the effective date. Furthermore, USPAP requires us to make some statement about this research within the appraisal report itself. If our efforts to gain this sort of information are unsuccessful, we must report on the efforts we made.
Another reason that we ask to see the purchase contract—and probably the reason that USPAP requires us to ask—is that such information is instructive for the appraisal process. The contract price could, for example, help us to discover whether the market favored the seller or the buyer, once we compare the contract price to the listing price. Additionally, our job is to estimate the market value for the subject, in which case we must analyze all relevant data for the subject’s market. A negotiated, arms-length purchase agreement within that market is certainly relevant, though it is not the only relevant piece of data.
We certainly want our customers to know that the contract price will not be the determining factor for our appraised value. Not only would it look suspicious if our appraised values always corresponded to contract prices, but it would be an improper, unethical practice, and we care too much about our reputation for honest, diligent work. But that very desire to perform excellent work motivates us to ask for the purchase contract, so that we can comply with regulation and utilize all relevant data.
Spurgeon Appraisals has performed appraisal work for most of the lenders in our service area, and we frequently perform appraisals to help them make decisions about loans for prospective buyers. Contact us today to make use of our wide-ranging experience and dedicated customer service.