Home Buying in 95014>Question Details

CG, Home Buyer in

How common is lender's appraisal at exact value of asking price/bid price of sole offer?

Asked by CG, Sun Oct 27, 2013

How often is it the case that the lender's appraisal comes back at EXACTLY the asking price? Wondering if this is somewhat fishy, especially in a situation where there is only one offer on the table, which is at the asking price, and the market is cooling...is this a situation where it's in everyone's best interests except the buyer to just push the deal through?

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Why do you not think it is in the buyer's interest for the appraisal to come it at the purchase price?

My full reply to your question got overly long so I turned it in a Trulia blog post. Check it out here:

http://www.trulia.com/blog/Fremont/2013/10/do_you_wonder_why…
2 votes Thank Flag Link Sun Oct 27, 2013
CG,
The appraiser has no knowledge of the buyer’s financial strength, credit, or assets. While those are factors that the lender takes into account in making the loan decision, those factors do not influence the appraised value of the property.
Flag Tue Oct 29, 2013
It may or may not be. As I'm coming to understand, it doesn't really mean what it would seem to mean. It's not really an appraisal of the house's true value on the open market. Just because it appraised at a certain level does NOT mean it's actually worth that. It just means the buyer will be allowed to proceed with the transaction. The house might be worth quite a bit less if considered without the benefit of knowing the buyer's own offer (which is factored into the appraisal, kind of bizarrely), but because the buyer is solid and has lots of reserves, the bank isn't too concerned about a buyer that maybe just wants to overspend. They figure the buyer is more likely to eat it than walk away, so their risk is low.
Flag Mon Oct 28, 2013
My final answer: 9 out of 10 times, even in this market.

The Appaiser is an independent party rendering a very legally regulated opinion as to whether the property appears to be worth the offer price. S/he searches to find 3 comparable sales to base their opinion. If they can't find three supporting sales, then they will come in with a value "below value". 9 out of 10 times (in Silicon Valley) they are able to find comps that support the purchase price.

Your decision regarding the offer price should not have been based on what the appraisal may say. You probably have an Appraisal Contingency that gives you the right to cancel (and get your earnest money back) if the appraisal comes in below the offer price.
1 vote Thank Flag Link Sat Nov 2, 2013
In my experience Bill McCord's answer is right on. The bank hires the appraiser (at your expense) to verify that the house is actually worth what the buyer is paying. The appraiser fulfills what the bank needs by saying that the house is worth the purchase price. If he believes it is actually worth more he has got himself some "insurance" by saying that it is worth the purchase price and not saying the actual value.

The loan is most often sold to an investor. The loan must have documentation showing that the house is worth at least as much as the loan or it will be very difficult to sell the loan.

If the appraiser says the house is worth much more than it actually is, the buyer could come up with a scheme to defraud the bank, borrowing more than the house is worth, then walking away from the mortgage obligation.

Home values in http://julianalee.com/zip-code/95014-statistics.htm

Juliana Lee
Top 2 agent nationwide at Keller Williams Realty, the nations largest
Cell 650.857.1000

Over 20 years experience
Over 1,000 homes sold in Santa Clara County and San Mateo County
.
Web Reference: http://julianalee.com
1 vote Thank Flag Link Wed Oct 30, 2013
- It's not really an appraisal of the house's true value on the open market.

CG, YOU have already established the house's true value on the open market, by entering into a deal with the seller.

Lenders need appraisers because the loan officer isn't lending their own money. If they were, like in the old days, they'd go out and look at the property and decide if it was worth making the loan. Today, they hire an appraiser to go out and give an OPINION of value which isn't a guarantee, but it can crash a deal.

Betty is factually wrong, because the law doesn't allow banks to hire "their own" appraisers. So the appraiser has no reason at all to "come in at value."
1 vote Thank Flag Link Tue Oct 29, 2013
@ Betty

So, Betty, your strategy is to encourage your clients to make an unrealistic offer and hope for an appraisal under the contract price in order to give the buyer the opportunity to renegotiate the price. In your opinion, the buyer is getting shafted if the appraisal actually comes in at the agreed upon price.

You say that you “ought to have more leverage if you are the only one making an offer” but why would you offer a high price if you are the only one making an offer? Do you really think it makes sense to offer a price that you believe is too high if you are the only one making an offer? Would you not start lower and expect to negotiate to some middle ground rather than start high and try to negotiate back down?

You say you are retiring for the real estate business. I and the rest the “cretins” will not miss you.
1 vote Thank Flag Link Tue Oct 29, 2013
Ditto!
Flag Tue Oct 29, 2013
Actually, quite common. Most people don't know that the purpose of an appraisal, required by a lender, is to support the sale price, not to ascertain the actual value. Appraisals determine "value" using various methods (e.g., comparison, replacement or cost, income) to support the sale price. If not, it would be lower. Lenders don't care and don't require appraisals to see if the transaction results in a good buy for the buyers but just if the comparisons (most widely-used method for residential) justifies to the lender that they should lend on the property and to what extent. I explain this to my buyers as it is an important distinction. I don't recommend to my all-cash buyers that they purchase an appraisal (about $500-600) for this reason. Bottom-line, a sale price that "appraises out" (whether one or a hundred and one offers) means you didn't overpay -- an obviously good thing.
1 vote Thank Flag Link Sun Oct 27, 2013
My understanding is that is the objective. The buyer and seller agreed to what market value is. The lender's appraiser now has the job to justify if that value is correct.

The appraiser receives a copy of the purchase contract and now their job is to find three recent closed sales similar to the property on the contract. Then through addition and subtractions come up with a value to equal the purchase contract.

When the purchase contract price does not match recent sales then the value will come in higher or lower.
0 votes Thank Flag Link Sun Nov 3, 2013
It is common that the lender appraisal comes in right at price. However, if the price is what the seller and buyer agreed upon why are you concerned that the appraiser agrees with you? Or were you hoping for a low appraisal and to negotiate about price?
0 votes Thank Flag Link Thu Oct 31, 2013
I think it sounds awfully fishy to me. The seller wants to sell, the bank wants to close the loan, the appraiser wants more business in the future from the bank or lender. Everyone wants the deal to go through at the asking price and all have a lot to gain....except you the buyer who would like to be able to negotiate the price down. You ought to have more leverage if you are the only one making an offer. Something doesn't sound right here, and I don't agree with all the other goons on here saying that the appraisal isn't about what the house is worth. Of course it's about what the house is worth you bunch of cretins. What else would it be based on? Get real. If I were you I'd walk and find some other place. This is one reason I'm glad to be retiring from the real estate business in the near future. It's this kind of crap that ruins our profession.
0 votes Thank Flag Link Tue Oct 29, 2013
It is very common. An appraiser has to think your home is way above value to put anything above purchase price on the contract.
0 votes Thank Flag Link Mon Oct 28, 2013
It is very rarely lower. But it is best to just have a second plan if you are concerned. Maybe a 80/10 product with no mortgage insurance if you are currently trying for just a 80% loan

Alex Greer
Loan Officer
NMLS #1056079
http://www.TheMortgageOutlet.com

408-352-5147
AGreer@TheMortgageOutlet.com
0 votes Thank Flag Link Sun Oct 27, 2013
In my practice almost 100%. I got an appraisal higher than the contract price once and a couple below the contract price.
Web Reference: http://talisrealestate.com
0 votes Thank Flag Link Sun Oct 27, 2013
Very common. In fact, if there is a difference in pricing, it is usually to lower the price, rather than increase it. In most cases, if the appraisal comes in at purchase price, it is a confirmation that the offer price can be supported by comparables. But even if the market is "cooling" (an opinion that I cannot find evidence to support in Cupertino just yet), remember that comparables are always backward looking, which means appraisals have a harder time catching up to value increases if the market rises suddenly and doesn't recognize price reductions until there are enough comparables to prove the decrease.

So, no, it is not a conspiracy to "fix" pricing, but simple an analysis based on available recent sales. As to whether its in the buyers best interest to push through, that's a decision that can only be made by the buyer.

Good luck!
0 votes Thank Flag Link Sun Oct 27, 2013
It happens a very large percentage of the time.... It sounds to me that you had three experts who came together with the same conclusion. The listing agent listed the house at a fair price based on comps; your Realtor did her/his own research and agreed the list price and the price you were offering to pay was indeed a fair price based on the comparables AND the appraiser (who by the way looks at ALL the same comps as the Realtor's do) ALSO concurred that the purchase price was the fair appraised value of the home.

Underwriters today are much more strict and look more closely at all appraisals coming in on properties... So because of this, appraisers have to have all the information required to determine what the fair market value is on a home. Because of the stricter/tighter lender guidelines of today, it is very hard (if not highly impossible) to commit fraud and lie about a value JUST to push a deal through. To be honest, it's not worth losing your license over!

Be happy that your home came in at the value you paid. In this over priced, multiple offer market, that does not always happen....

And, not sure if "cooling" is the appropriate term for our market right now... It's more like the seasonal slow down.... And we still have very little inventory to chose from, so there are buyers still out there that have been trying to buy for months...
0 votes Thank Flag Link Sun Oct 27, 2013
This is perfectly normal once you understand the question the BANK has asked the Appraiser to answer.
Quote "IS THIS PROPERTY WORTH THE AMOUNT BEING PAID."
NOT
" HOW MUCH IS THIS PROPERTY WORTH"
The purpose of the appraisal is to assure the Bank that the property is worth at least the price being paid.
What you describe is the result of the Appraiser answering the question asked.
If you want to know how much it's worth that's a different task for which a 2nd fee would be required.
Hope this explains you legitimate question.
Good luck
Bill
0 votes Thank Flag Link Sun Oct 27, 2013
Hi CG,

It is very common for the appraised value to match the purchase price.

In a stable market, the value is determined by recent comps, but also what someone is willing to pay has some influence. That's why, in most cases, the appraised value will match the offer price.

It's highly unlikely that something "fishy" is going on.

Best regards,

Elva Wormley
C2 Financial Corporation
408-615-8500
0 votes Thank Flag Link Sun Oct 27, 2013
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