Most buyers, at least the ones I work with, get a pretty good idea of the market. They see what houses they've passed on have sold for, they can recognize a good buy when they see it.
So now, they decide to buy a house - perhaps even in a multiple offer situation - and an appraiser thinks, "Well, you're paying too much." OK. It's an important opinion, the loan depends on it!
But it doesn't have to be The Final Word. If Angela thinks she can find a better house for the money, then I think she may be better off moving on. If she doesn't, and she can afford it, she should probably buy the house. If she doesn't have the cash to make up the difference, well, maybe her agent has some ideas.
If an impartial third party (appraiser) is estimating value below your purchase price, this is the business side speaking to you. Unlike your agent, there is no vested interest here so this is something to consider.
If you buy anyway, you will need to kick in money to cover the gap and you will be essentially going into a deal paying "X" for a home that appears to be worth "Y". But since "worth" is subjective and real estate is unique, your "value in use to you" may be more important than the value placed on the home by the appraiser.
So does it make sense? It does if you think so.
Debbie Franco - Realtor, CNAS
Better Homes and Gardens Real Estate - EP
Also spot on Bill - I was easing out of the retail side of the appraisal business just before the boom; you could easily see where this would end up. Since the crash and subsequent scapegoating of the appraisal industry, a good 75% of the veteran ones I know are out for those very reasons mentioned. I haven't done retail work in a good 10 years, fortunately I haven't needed to but many have to.
It's fascinating how the big banks did quite well between bailouts and hand slaps, the real estate sales industry did nothing to raise the performance/experience requirements and most other associated industries picked right up again - maybe a little more red tape but nothing major. The appraisal industry however, pretty much gutted and isolated to work with blood sucking middle men that do nothing but collect "a taste" of everything. Thank you Washington.
Also, you may want to review the appraisal to make sure the appraiser didn't make a mistake. I've run into this in the past, so if you notice any discrepancies, notify the appraiser and find out the procedure to have them revise the appraisal report.
Before you walk, have your agent explore all options with you.
Best of luck!
That law passed when Obama took office also made it impossible for anyone to discuss anything with the appraiser unless they wanted to pay heavy fines. Now you have an angry appraiser, making half the income as before the law went into effect, with a management team telling them to keep the numbers low so that the bank will continue to use them (a bank wants a low value so that there's more cushion in the value of the property).
Therefore, I wouldn't worry about what the houses are selling for (unless you plan on flipping it). Buy the house because you want it.
Besides, I've seen some terrible appraisals. I'd advise you to look at the comps selected by the appraiser. Then, if you have a CMA, look at those comps. Which are more reflective of the property you're interested in? How about location of the properties? Are they close-by? In comparable neighborhoods? In your question, you talk about a house down the street selling at a high price. That might be more relevant than the comps the appraiser used.
So while an appraisal is a useful tool, it's not the final word.
Hope that helps.
How much of a difference is there in value and what are the main differences in the properties? If there is a big difference in values with little difference in features, it may be in your best interest to consider other options. However, if the gap between the price of the two homes is slight and there are other considerations that help to close the gap, I wouldn't be too quick to pull the plug.
You have knowledge of the real estate market so you not worrying about an appraiser's opinion when operating in that arena is significantly different than a novice doing the same. The idea that "I like it, I want it" has resulted In trouble for many, not just in real estate.
Would it not be similar to you dropping say 100K for a luxury boat or car that your dealer, the seller's dealer and seller all said is worth it only to have an independent appraiser say it's worth 50K? Isn't a disinterested party's opinion valuable when the buyer has no experience in the arena? You might love it and not care - and if the financial ability exists you buy it, but this then becomes less of a business decision and more of an emotional decision.
There is no one "value" to any piece of real estate - it's all about "value in use" and value to each person inhabiting it. Pros do the best they can at any given point in time and there are subpar agents and appraisers out there. Might be best to get a second appraisal if the home is highly desired by the buyer. There are always variables in every situation.
One of my clients, a close friend for 30 years, paid $25000 more than appraised value on a $700K + house a few years ago.
He had a 50% loan - plenty of equity and we all agreed that the appraiser hired by his bank was an absolute numbskull who did a lousy job fetching close comps.
So, the seller came down a little, and the buyer had to come up $25K when the seller said - "your appraisal is stupid, we all know the house is worth more, and I'm not selling it for that stupid number."
My buyer said I got kids starting school in 30 days, lets get'er dun.
So there you go.
Get out of judgment and into curiosity...
With all due respect to appraisers, who have a very difficult job (trying to figure out what a willing buyer would pay for a property), it's not their money. They may advise the bank that THEY think the house is worth less than the buyer does, and that opinion is important to the bank, but it doesn't have to be important to you.
When I buy a property, I don't ask an appraiser for their opinion. I respect that the lender is going to want an appraiser, but if I have to make up the difference to make the deal work, I will do so.
You, on the other hand, don't have to. Ask your agent what they think. They may have a good idea for you.
All the best,