They must, based on some of the appraisals I've seen. Probably the tidal schedule as well and the latest lemmings run ... and don't forget deer season ...
Certain things will not make a difference - if one house is on a 1 acre piece of property that is hilly and un-usable, and the other is on a beautiful flat acre that is nicely cleared, there is generally no adjustment for that because it goes by square footage of the property. I have a situation now where the buyers wanted a house where the wife could move easily from room to room because she sometimes uses a wheelchair. They purchased something that did not appraise for anywhere near what they were paying, however we are talking about a purchase price of $1,450,000, a value of $1,200,000, and a loan amount of $417,000. The value did not affect getting the loan, however the underwiter will want a motivation letter as to why they are purchasing something that is valued for a lot less.
If you're doing an FHA loan, they typically ask for two appraisals. Depending on whom the bank hires, don't be surprised if the two appraisals are very different.
This happened to one of my sales on a $500K property --- one came in at $499K, the other at $399K. And neither appraiser would budge. The sad part is that both appraisers are not from the area or even the same county so we were not confident at all with their assessment.
My buyers decided to move on to another property which turned out to be better than the first. So in our case, things worked out for the best.
I would think that the appraiser should have to "build" his appraisal the same way that we agents do. By looking at recent comparable sales. But instead, what they do is ask us for a copy of the purchase contract (which of course has the purchase price on it), which undoubtedly has some influence.
Instead of building a value from the ground up, what they tend to do is look at the purchase price, and see if they can find recent comparable sales to "support" that figure. Personally, I find it a little bass-ackwards, too.
That being said, there has been so much upheaval in the appraisal industry over the past three years that no one seems to really know, anymore, just how appraisers actually come up with values. Iâ€™ve had an identical (in every way) property next door to a VERY recent closed sale (3 weeks) appraise for $30,000 LESS than itâ€™s twin next door. Iâ€™ve had other properties (just last week) appraise for $40,000 OVER any other identical home in the area â€¦ you get the idea.
Banks, not willing to be burned, are pressing for lower values â€¦ and on it goes. Here are a few posts that may be helpful:
New Appraisal Guidelines: 3 Negative Ways This WILL Affect YOU!
Yet ANOTHER Buyer Loses A Home To A Botched Appraisal (Buyers No Longer Setting Prices)
Missed It By THAT Much: Top Four Solutions To Low Appraisals
Yes they do.
They take all into consideration.
You can not second guess an appraiser.
Harold Sharpe - Broker
So Cal Homes Realty
California Department of Real Estate Broker License # 01312992
Appraisers absolutely do consider the offer price a Buyer submits! An Appraiserâ€™s job is to make a good faith effort to determine current Market Value; however, offer price is only one â€œdata pointâ€ along the path of arriving at Market Value.
Here is the commonly agreed-to definition for Market Value set forth for U.S. federally regulated lending institutions:
"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:
1) The buyer and seller are typically motivated;
2) Both parties are well informed or well advised, and acting in what they consider their best interests;
3) A reasonable time is allowed for exposure in the open market;
4) Payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and
5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."
To arrive at a Market Value an Appraiser must combine both quantitative (measured) fact and personal qualitative (observed) opinion.
In reality they shouldn't, but most appraisers try to come in at value if possible. This illustrates why the appraisals have no real world practical value, but it is something we all have to live with.
Lance King/Owner-Managing Broker
It is not unusual to have an appraisal come in higher than purchase price, but lenders will always take the lower of the two before they determine your final loan amount. The only loan program I am aware of is the USDA loan that would allow you to actually finance some of your closing costs if the appraised value came in hgher than the accepted purchase price. Contact me if you would like further info on this and it has certain income and geographic restrictions.
This scenario can just as easily go the other way though. If the appraised value comes in LOWER than the purchase price, then the lender make make you put a larger down payment down possibly and you would also have to make up the difference in cash between the appraised value and the purchase price you agreed.
In the case of a lower appraised value, this is where having a professional agent representing you can help to renegotiate the sales price. Otherwise, you will be paying the difference in cash if you want to go forward and complete the purchase.
Yes, in fact it's a major consideration. Your down payment will be X% of the purchase price. If the appraisal comes in higher, it's still the purchase price. If it comes in lower, you need to either renegotiate or come up with more down payment.