It is always best to get an appraisal when purchasing distressed properties - short sales, bank owned (reo) - as is a home inspection, whether you are getting financed or a cash buyer.

There are different types of appraisal products you can get, from a simple dest-top market analysis to a full interior/exterior appraisal, and several others inbetween. Unfortunately for many buyers, getting an appraisal is usually the last element acquired in the transaction, therefore the need for a contingency clause in the purchase contract. Investors will always determine the market value before offering or purchasing a property, home buyers would be wise to do the same.

The main objective in a short sale situation is for the property to sell as close to the owed amount as possible to reduce the amount of loss for the lender. And most lenders will already know what the appraised market value is and may not accept an offer at that value and opting to foreclose.

A home inspector will check the property for condition and functional elements that buyers and others most likely will not be aware of. An appraiser will do similar for the market area condition and trends, property marketability conditon and amenities, and other things affecting value, when determining the market value.

Thanks Jay. It's amazing at how different contracts are. I imagine there are a lot of clauses and standard verbage in your contracts that are not in ours, simply driven by experiences in the market. Our contract does have a clause that says something like 'if this is a cash sale buyer does/does not wish to order an appraisal' the appraisal contingency can still apply, the trigger date for ordering it shortens, however, to 7 days..if i recall.

I'm just assuming that John doesn't have an agent, too!

Lori -

The standard contract from the Arizona Assn of Realtors has an appraisal contingency written into the financial section. But as this is an all cash deal, that section doesn't apply. So unless the agent (or whoever drafted the contract) put in additional language to cover the appraisal in an all cash deal, then there may be no recourse. Personally I think that is a flaw in our standard contract. An agent should realize this and take appropriate steps to protect their client, but let's face it, not all agents truly understand the contract, as remarkably sad as that is.

But as you pointed out, we don't know what contract was used, what was added/removed from it or if John even used a real estate agent. Nor do we know where in the short sale process this transaction is, or if the standard AAR short sale addendum was added to the contract (which may, or may not, provide another "out"). This all points out how difficult it is to answer many question posed on a forum like this.

John - Lori makes a good point. Contract language is very convoluted. There may be other avenues to get released from your contractual obligations. If you have an agent, they should be able to help. I wish you the best and here's to your appraisal coming in HIGH!

Sorry about no appraisal clause in there. However, the appraisal is a protective measure either way. They don't just measure and price, they check for other aspects of the property as a whole for compliance. We all don't know what type of contract you are using but if you still have the inspection to do, you probably still have options. I'm assuming it's not a standard contract used by agents since ours clearly has the 'yes' or 'no' part about the appraisal - be a litte hard to miss it during the writing. Sit down and really read that contract from start to finish. When a sentence refers to another portion of the contract, flip to that portion and see what the are talking about. Good luck. You may not have anything to worry about in the end. Let us know what happens if you have the time.

Thanks to everyone for your response, after looking at the contract a little closer it would appear since I am not financing the property I would have no recourse if the appraisal came in below my offer. I guess I'll get one anyway just to see where I stand. Thanks

Listen to us John and get an appraisal. It' can't hurt you.

Stew Keene

John,

Eventhough you feel good about the circumstances as they appear to be it may be advisable to consider having an appraisal done. Consider the fact that if you were borrowing a bank would not lend you money without an appraisal.

They take this position to protect their interests......are your interests any different?

Did you make your offer contingent on an appraiser despite your cash offer? I would recommend getting one for your own peace of mind but what happens if it comes in low depends on what you wrote in your contract.

I've been a cash buyer, as well as represented cash buyers, and we always get an appraisal. You are spending $265,000, spending another $350 for the appraisal seems like common sense to me.

John -

As a cash buyer, you don't HAVE to get an appraisal. But you may feel better/more comfortable if you do.

Whether "feeling better" is worth the $300 or so an appraisal will cost you is something only you could decide.

I don't know the percentage of time an appraisal comes in low. It certainly happens, and it happens a LOT more in a declining market like we're in now than it used to.

Your agent should be able to give you a very accurate estimate of current market value. It's not an appraisal, but it may provide the "feeling better" thing.

Consider this... what would you do if you got an appraisal and it came in low? If you used the standard AAR residential resale purchase contract, and it doesn't have anything written into it about an appraisal contingency, then there really won't be much (if anything) you can do should it come in low. (the boilerplate appraisal contingency only applies when financing is involved.)

John,

Your agent should be able to provide you with a solid CMA, depending on your market you may have to look at the active, pendings and sold listings that are true comparables - then make the necessary adjustments. A good CMA will require a visit to the subject property and detailed information (or visits) to the comparables.

Remember that most CMAs you get for free are done very quickly and not good enough for your purpose - as they are not too accurate. They are only good to give you a general idea.

If you do not have an agent, I will strongly suggest you to get a professional appraisal done. On this market there are many properties that are not appraising.

Good luck!

Carlos
ABR - Accredited Buyer Representative http://www.SmartAZRealty.com
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I always think you should get an appraisal. Just so you are not paying more than you should. What if something comes up in a year or so and you are forced to sell? You might take a loss if you have paid too much. It is very difficult for a layman to know a real value even looking at the comps. Look at the example from Mr. Kroon below. His buyer saved himself $20k. I'd say that was worth the appraisal cost.

If you will feel more comfortable with an appraisal, by all means get one.

This is a tough time for appraisers as it is for all of us in the industry. The appraiser will be looking at the same sales you are for that subdivision/area...and the appraiser will have a difficulty trying to make sense out of the sales numbers just like all of us.

Will the prices go lower ? How will that affect my appraisal today ? Should I go with a lower figure and try to guess what the future holds ?

I had a contract of $ 80,000 in place on a foreclosed home recently. The lender called for an appraisal. It came in at $ 60,000. Fannie Mae ( seller ) complained a lot but ended up selling to my buyer for $ 60,000.

Hi John,

Have you seen the Sold comps yet or just the Asking comps? The fomer should give you a good initial idea of the real value of the home, barring other factors like condition, etc.

Here's Trulia's list of Sold Homes in that Zip Code - it's a BIG list. You may wish to adjust it with # of BRs, etc - to get a better idea of a valid comp for that property.
http://www.trulia.com/for_sale/MULTI-FAMILY_type/resale,new_…