The appraiser will most likely know the selling price of a home. Why? Because the standard appraisal forms require the appraiser to enter the information, thus the appraiser will have a copy of the purchase contract. However, unlike the purchase price, an appraiser does not know the loan amount.
If you are getting a loan for the property, the sales contract will be given to the appraiser. Per Fannie Mae selling guide:
- "The lender must provide the appraiser with a copy of the complete, ratified contract. The appraiser must indicate whether an analysis was or was not performed on the contract for sale. If an analysis was performed, the appraiser must provide the results of the analysis."
There are several reasons for this including:
- To determine of the sale is an arms length transaction
- To determine if there are concessions involved or if there are other things included in the sale that are not real property (furniture, cars, boats, golf carts, etc.)
- USPAP (Uniform Standards of Professional Appraisal Practice) requires in Standards Rule 1-5 states that appraisers are required to analyze any contract for sale and/or listing of the property.
Purchase contracts can provide valuable information to the appraiser, whether it is listed repairs, a series of counter offers to to tell a story about how the contract price was negotiated. The sales contract is just one more piece of data to be used in the appraisal process.
While it is required for the appraiser to receive the contract for sale, appraisers are required to provide an independent and unbiased opinion of a property's value based on the data available. The appraiser's primary role is to determine the fair market value of the property based on objective factors such as its condition, location, comparable sales, and market trends.
The appraised opinion of value may be the same or very close to the contract price however, it may also be considerably higher or lower. The job of an appraiser is not to appraise a home based on the sales price or on owners thoughts or needs, but to provide an accurate and supportable unbiased opinion of value.
In fact, it is unethical under the Conduct Section of the Ethics Rule in USPAP which states that an appraiser must perform assignments with impartiality, objectivity, independence and without accommodation of personal interest. Also an appraiser;
- Must not perform an assignment with bias
- Must not advocate the interest of any party or issue
- Must not agree to perform an assignment that includes the reporting of predetermined opinions and conclusions (this would include a contract for sale)
- Must not misrepresent his or her role when provided valuation services that are outside of appraisal practice
- Must not communicate assignment results with the intent to mislead or to defraud
- Must not use or communicate a report or assignment results known by the appraiser to be misleading or fraudulent
- Must not knowingly permit an employee or other person to communicate a report or assignment results known by the appraiser to be misleading or fraudulent
- Must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, an unsupported conclusion that hom*ogeneity of such is necessary to maximize value
- Must not engage in criminal activity
There are times that we have appraised properties for private sales where both the buyer and seller have declined to provide this information. In cases like this, USPAP Standard 2-2 viii states;
- When reporting an opinion of market value, a summary of the results of analyzing the subject sales, agreements of sale, options, and listings in accordance with Standard Rule 1-5 is required. If such information is unobtainable, a statement on the efforts undertaken by the appraiser to obtain the information is required. If such information is irrelevant, a statement acknowledging the existence of the information and citing its lack of relevance is required.
it is important to note that the appraiser's role is not to appraise the property to match a specific sales price or loan amount, but rather to provide an accurate valuation based on market conditions. If an appraiser were to ignore market data to provide an opinion of value at the sales price this would break most of the above rules and the appraiser could lose their license to appraise.
Maintaining independence and objectivity is crucial for appraisers to ensure the integrity of the appraisal process.
