Why do appraisers get a copy of the contract? Doesn’t this set the value stage? Someone asked me this recently, and I wanted to respond with a few thoughts. I’d love to hear your take in the comments too.
Things to Remember about the Appraiser Knowing the Contract Price:
- Fannie Mae Requirement: If you didn’t know, the Fannie Mae appraisal form requires appraisers to analyze the purchase contract. Fannie Mae wants appraisers to list the contract price, date of contract, whether the seller is the owner (a safeguard against fraud), and if there are any concessions offered to the buyer. Moreover, if the contract cannot be analyzed, the appraiser has to explain why. See the text below straight from Fannie Mae.
- Valuable Data: Purchase contracts can provide valuable information to the appraiser. Sometimes there are listed repairs, credits offered, personal property given, or other incentives that might be influencing the agreed upon price. Other times there are a series of counter offers that help tell the story how a contract price was negotiated.
- MLS: Even if Fannie Mae did not ask appraisers to analyze the contract, appraisers would likely have MLS data during a sale, and then the complaint would be that appraisers are using the MLS pending price as a target value. Thus the issue is appraisers need to be objective about the value regardless of the information they have (and having more information is a good thing when valuing a property).
- The Bad: Appraisers can use a contract price as a target, but it shouldn’t be the goal to meet a certain value since appraisers are supposed to be objective and unbiased. We all know properties get into contract too high and too low at times, so appraisals shouldn’t “hit the number” every single time.
- The Good: There is nothing wrong with reconciling the appraised value to the contract price if the contract price represents a reasonable and supported value for the neighborhood. When doing this, an appraiser might say the following: “The contract price falls within the range of values indicated by comparable properties and represents a reasonable value for the subject property. Therefore the opinion of value in this report was reconciled to the contract price.” Or in layman’s terms, “Yep, the buyer and seller nailed it. Value is solid right where they agreed. How can I argue with that?”
Straight from Fannie Mae (p. 564 of the Seller’s Guide): All appropriate financing data and sales concessions for the subject property that will be or have been granted by anyone associated with the transaction must be disclosed to the appraiser. Typically, this information is provided in the sales contract. Therefore, the lender must provide, or ensure that the appraiser is provided with a copy of the complete ratified sales contract and all addenda for the property that is to be appraised. If the contract is amended, the lender must provide the updated contract to the appraiser to ensure that the appraiser has been given the opportunity to consider any changes and their affect on value. If the lender is aware of additional pertinent information that is not included in the sales contract, the lender must provide this information to the appraiser.
Questions: Do you think it makes a difference in the appraisal when the appraiser knows the contract price? Appraisers, what do you like or not like about analyzing the contract as a part of a purchase transaction?
My Suggestions for Meeting: I get that part of the effectiveness of meeting with an appraiser is how communicative the appraiser is. During loan transactions you never know whether the appraiser is going to be local, experienced or even conversational, so it’s no wonder why some agents have made it standard procedure to meet the appraiser (by the way, appraisers never know what type of agent they’re going to get either). 🙂 This is why I recommend bringing a packet to every single appraiser meeting so you can provide a detailed list of all upgrades, information about the neighborhood and/or specific information about recent sales and listings. If you don’t have a system already, feel free to use my 
Today I want to share 10 subtle (or not so subtle) statements that in a small way can come across as trying to influence an appraiser’s value. These statements are very normative in the real estate industry, aren’t they?
My advice? It’s probably best to use language that cannot be interpreted as pressuring for a certain value – whether high or low. If you find yourself using subtle statements like this, ask yourself what you are really trying to get across to the appraiser. How could you do that without pressure statements? Honestly, it likely feels tricky sometimes to be able to communicate with appraisers these days in light of HVCC and Frank-Dodd, but with some focus and strategy, there are definitely ways to chat and convey good information to appraisers – without trying to steer a certain value. If you’re looking to communicate more effectively with appraisers, check out