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Use the Appraisal Not the Purchase Price
Randy Carey, BOL Guru
Guru Bios
Question: Recently we had a loan that involved a purchase of commercial property obtained through foreclosure. The properties were both appraised and were significantly higher than the purchase price at auction. Can the bank choose to ignore the purchase price as the value of the property and use the appraisal as market value due to the fact the property was purchased at a discount? Also what is the regulation that requires purchases to less the cost or appraised value?
Answer: There are no exceptions for the scenario that you have described. You can find the rules here. Specifically: Value means an opinion or estimate set forth in an appraisal or evaluation, whichever may be appropriate, of the market value of real property prepared in accordance with the agency's appraisal regulations and guidance. For loans to purchase an existing property, the term "value" means the lesser of the actual acquisition cost or the estimate of value. Whether purchased at a foreclosure sale or through other means, the sale price does determine current fair market value (regardless of what some people would have you try to believe).
First published on BankersOnline.com 7/24/06
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