WalshStreet Blog

The Relevance of an Appraisal
November 21st, 2010 3:02 PM

Rule #1; if your discussing what a property is worth and that worth is not based on an appraisal completed by a properly licensed and experienced appraiser, then there is an additional influence involved in the number you're considering. That influence is from someone's commission or profit! It's that simple!

When you purchase other large items like a car, you have direct communication from the the manufacturer; what the base price is and what the fixed costs are for any extra features you want. Its the same for everybody in that regional market. Thanks to the internet you are now able to see the markup on the car and how much profit the dealer stands to make if you purchase at an agreed upon price.

 In real estate you don't get this kind of absolute information, it's typically presented to you by a "commissioned" salesperson or you research some online real estate data websites that use simple, generalized algorithms that don't take into account the specific characteristics of your property or the overall trends of the market, foreclosures, REO's, short sales, etc... 

Unlike buying a car, there are several items concerning property that are commonly "unsubstantiated" as to how much they add value or reduce the value of the property. Some of the more common residential misrepresentations are:

"It's selling for 100k more because of the city view"! "Yeah, but the lot is 5,000 sq.ft. more than most of the others, that's why its listed for 75k more. "We spent 200k in upgrades so its at least worth 100k more in value"! "Its selling for 75k more because its an end unit"!  "We've reduced the list price 150k from the original price, its a steal at this price"!

An appraisal includes research and analysis of every contributor to value of a property and every issue that may reduce value. Instead of an arbitrary comment which at best may be based on some loosely related facts that someone remembers about a sale nine months ago, an appraiser isolates each item in question and performs a complete analysis based on current data and uses multiple data sources.

And finally, but most importantly, don't let someone give you the biggest sucker line in real estate, "I have a willing buyer and the seller is willing, so that's what the property is worth". Or sometimes the misrepresentation is sweetened, "we have multiple offers at this price for this property, therefore it must be worth it"! The most commonly used definition of market value used by most of the governing entities involved in real estate says, "an agreement of price between a "fully informed" buyer and seller" establishes market value. The important words that are commonly left out of many peoples definition of value is "fully informed". If all of your multiple offers are based on buyers being told that the house is worth 100k more because of the city view by a select few who stand to make a commission or additional profit, they are inclined to go along with that price. The buyers think they've been properly informed and all of this is occurring because of someone's assumption, guess or hearsay.

 Do yourself a favor, base your purchase or sale on the appraised value, otherwise you can be spending or loosing thousands based on gossip! 

Posted in:General
Posted by Lawrence Walsh on November 21st, 2010 3:02 PMPost a Comment

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