Why Appraisers Ask for the Purchase 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 purchase 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.
Purchase Appraisals
Two Reasons We Ask
Why we request the contract, or its major details.
Regulations Require It
USPAP requires appraisers to investigate the purchase contract and report on that research.
It’s Instructive Data
A negotiated, arm’s-length agreement is relevant market data, but not the only data.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Reason 1: Regulations Require Us to Ask
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.
USPAP
What Appraisers Must Research
What USPAP requires appraisers to research about the subject property:
Current listings
Options
Purchase contracts
Past sales
within 3 years of the effective date
The report must include a statement about this research,
including the efforts made if the information couldn’t be obtained.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
Reason 2: The Contract Is Useful Market Data
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, arm’s-length purchase agreement within that market is certainly relevant, though it is not the only relevant piece of data.
The Contract Price Won’t Determine the Appraised Value
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.
How the Contract Is Used
One Piece of the Puzzle
The contract price is relevant, but it is not the determining factor.
All relevant data for
the subject’s market
The purchase contract
(one data point)
Listing price vs.
contract price
Did the market favor the seller or the buyer?
Opinion of market value
Appraised values that always matched contract prices would be improper and unethical.
Farm · Commercial · Home appraisals | Missouri · Illinois · Iowa
About Spurgeon Appraisals
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.
Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.
