Ask Henry

Sale Value Differs from Appraised Value
Hi Henry,
What to do if the appraised value comes in at ~10% less than the accepted price in a foreclosure?

Thank You
AK
(email withheld by request)

Dear AK,
The question you ask really covers all sales that are different from the appraised value.

When you make an appraisal on the Fannie Mae/Fredde Mac form you are using the federal definition of Market Value. This definition makes a lot of assumptions that often do not apply to an individual sale and often explain the difference between the appraised value and the sale price.

If you have not used this definition of market value and instead have used a custom definition like "distressed value" or "short sale value" it is more complicated but the same principles apply.

In most cases the appraiser should take the information about the sale and use if for another appraisal in the same market area if you get an assignment to make an appraisal where the definition of value is "foreclosed sale" value.

When a client askes you why your value is not the same as an individual sale you might reply, “I estimated market value based on it being a sale that fits the definition of market value which is different from "foreclosure sale" value which may explain the difference”. You might also say that your appraisal is just you opinion of what the value is based on the data available and it most likely will not be the same as a specific individual sale.

Unfortunately, the concept of different definitions of value will produce different appraised values is hard to explain which means that many of your client will not be happy with your explanation.

Good luck!
HSH
askhenryharrison@revmag.com