DOES THE APPRAISAL REALLY MATTER?
June 5, 2015 | Richard Sites
Appraisals have their place in the Jupiter real estate transaction but they also have some pitfalls so let’s take a look at them.
An appraisal is nothing more than an approximation of the value of a property usually to a lender. It has nothing to do with value to a buyer. This is why famous paintings often sell for millions more than their appraised value when they go to auction. Some affluent buyer wants the picture, at any cost, so the “appraised value” is meaningless.
Now, on Antique Roadshow, where people bring objects in to experts for appraisal, this value is important to the owner and it makes for good TV. People like to think that a relative left behind something of great value or that lamp they picked up at a garage sale is really a Tiffany.
However, nothing, not a house, car, painting or family heirloom is worth one penny more than what a buyer, not under duress, is willing to pay for it. But suppose someone is lending you the money to buy something. Now the appraised value enters the picture.
Lenders are only concerned with protecting their investment and earning a return on the loan, safely. So how badly you want to buy the house doesn’t matter. What matters to a lender is only what a certified, residential appraiser says it is worth. Period.
Most large transactions for homes like those in Admirals Cove are cash deals and don’t get appraisals.
But suppose you agree to pay “X” for the property yet and appraiser says it is only worth “Y”. What now? Well, there are a couple of solutions.
First, agree to lower the sale price to the appraised value which means the lender can make the necessary loan to the buyer.
Second, the buyer could still agree to the sale price but agree to put more money down changing the LTV ratio and making the loan work.
Third, nobody will re-negotiate their position and the deal falls apart.
Fourth, the two parties could agree on something in the middle, sort of a “Solomon’s baby” solution.
I once had a situation where my clients, the buyers, had agreed to pay $359,000 for a property but it only appraised at $315,000. The sellers (not my clients) were furious and called me to say they would never sell the house at that price. After I calmed them down I explained that they could certainly vacate the contract but it wouldn’t make their house worth any more. So the buyers upped their down payment, the sellers agreed to the lower number and the deal went through.
So what should you take away from this? The appraised value, meaningless to the buyer, is critical to the lender. So whether you are buying or selling be prepared to deal with the “appraised value” unless the buyer is paying cash.
If you would like to have a no pressure conversation about your real estate needs, feel free to contact me at 561-762-4073 or use the form below. Unlike most agents I have lived here 25 years and know the area inside and out.