Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, he waxes eloquently about the importance of having a valuation date (and a sense of humor). …Jonathan Miller
A recent article in the Wall Street Journal entitled After the Boom: Slump Proves Painful for Some Owners and Builders [WSJ] contained anecdotal accounts of some disappointed sellers caught in the vise of a market that was obviously undergoing correction. My attention was caught by a report of a seller in the Washington D.C. area who had her house on the market for several months with a $1.1 intial asking price based on a 2005 appraisal. The seller was attuned to the fact that the appraisal “appeared far off the mark” and she opted to put the property up for auction and accept the highest bid above a reserve price of $675,000. On the day of the auction, August 5th, the highest bid came in at $475,000 which was not accepted. The bidder then upped it to $525,000 and it was finally bought at $530,000.
I was particularly caught by the comment of of the appraisal being “far off the mark” as that was the guiding factor in the seller’s asking price. Unknown to the reader is what the time differential was between the date of value of the appraisal and the date that the seller put the house on the market. This leads me to the caveat that all buyers and sellers should be aware of in dealing with appraisals-to wit that all appraisals MUST contain a date of value. So if Ms. Seller had an appraisal dated sometime back in September 2005 and put her house on the market in April 2006 there would have been an obvious disconnect. Would anyone buy stock based on stock price quotes 6 months old? No? Well the same would apply to buying and selling a house based on a 6 month old appraisal. One of the best things USPAP ever promulgated was to insist that all appraisals must have a date of value. But then again, they were only belaboring what had already been an industry standard for decades ever since the canon was closed on the 3 approaches to value.
A more jocose reference in the Journal article was the profundities of a chief economist of a New York economic research firm who stated that “housing is poised for something ‘harder than a soft landing but softer than a hard landing.’ This reminded me of Harry Truman’s desire to appoint a one-armed economist as his adviser so that he could not say, “On the other hand.”
Semper Fee Simplistic