“This contract is not contingent upon the Property being valued at an Appraised Value according to the Lender’s appraisal or other appraisal as agreed upon by the Parties, including but not limited to any VA, FHA or other Lender approved appraisal, for the Purchase Price or more. In no event will the Purchase Price be amended to match the Appraised Value. In the event that the Appraised Value of the Property is lower that the Purchase Price, Buyer understands and agrees that they will be responsible for any difference in amount or monies owed at Closing. Buyer is responsible for the full Purchase Price at Closing. This agreement is not dependent on any agreement between the Buyer and Lender and shall be in full force and effect as between the Seller and Buyer. “
First a little background. The contract is from an online “Disrupter “company” that does not follow the traditional real estate sale procedure. There are no agents involved and the company acts as middle man between the buyer and seller. Sometimes the seller is the “Disrupter” company itself.
So what are the obligations under USPAP for the appraiser?
We are to analyze the listings and agreement for sale and summarize our analysis. Standards 1 and 2 right? We do this all the time, so no biggie. Well, not so fast. There are quite a few things to consider with this language.
First we have to determine if this is an arms-length sale. We also need to understand the buyer’s motivations, not only for agreeing to the language in the contract, but for the purchase price. Did the buyer read the contract? Did they understand what they were agreeing to? Did the buyer or seller have any input into the language of the contact? Was the buyer educated on market value? Were they advised by a Real Estate Professional? Did they act in their own best interest? What if the seller is the “Disrupter “company”?
So how do we find out all of this information?
Simple, we need to talk with the buyer and seller.
Let’s assume you talk with the buyer and seller and the buyer was unaware of this language. What information is required to be summarized under USPAP? Do you include the buyer was unaware of the language? Do you report no agent was involved to properly advise the buyer? What if the buyer relied upon an AVM from the “Disrupter” company” as their due diligence? Did the buyer have a licensed appraiser complete an appraisal? How much detail do you include? Do you have an obligation to explain to the buyer the importance of an independent appraisal? Should you? Where is the line to be considered compliant with USPAP?
What about the bigger picture of this language? Is this a market value transaction? Does this sale become the new comp for the neighborhood? Will this sale be included in the next AVM that is completed for the neighborhood? Will the data aggregators pick up this sale to include in Collateral Underwriter? Will this sale be the new Fannie and Freddie benchmark? Does this feed into the next bubble? Should the dangers of such language be included in your analysis?
Appraisers are licensed to protect the public trust in our profession. Where is the line in that protection?