Wednesday, October 11, 2006

Closing in on Closing: Appraised Value

The other reason I thought my condo would be ready to close soon is that they just did the appraisal. The apartment was appraised for an amount that is comfortably above the price I'm paying for it. Not astronomically higher, but a little higher than I thought it would be. Does anyone have any anecdotes to share about appraised values vs. selling prices? Are they ever way out of line? I know I've seen some comments from people whose homes were appraised for a higher value than they felt comfortable including in their net worth. Has anyone ever run into a situation where the appraisal came in lower than the selling price? How did you deal with it? That was one of my slight anxieties about my condo, that in the time since I made my offer the market conditions have changed, and that somehow an appraiser wouldn't think it was worth as much any more-- who knows, perhaps that could have been the case if the closing wasn't going through until next year...

3 comments:

LuckyLily said...

Any appraiser will tell you that an appraisal is worth the piece of paper it's written on. Not very comforting, unfortunately.

An appraiser's job is just to ensure that if anything were to happen, the lender would more than likely get his money back. The appraiser typically gets a copy of the important contract details (purchase price, concessions, loan terms, etc), and he bases the appraisal off of that value.

So unless the home is grossly overpriced, usually, the appraisal will come in at around $5-10k over the purchase price. If it were much higher, it would raise red flags with the lender, and the loan would take longer to go through.

Just went through this 2 weeks ago on one of our investment properties that we purchased about $80k below retail value, but the appraisal only came in $10k over our purchase price. We had a great, experienced appraiser who was very helpful and provided us with his "real" market assessment on the side.

If you want a true "value" of your condo, the best bet is to get a good real estate agent to do a throrough CMA. But just keep in mind that a property is only worth as much as someone is willing to pay for it...

Enjoying reading your blog. Keep up the great work!

Anonymous said...

The only true indication of what your condo is worth is what a willing buyer would pay for it in today's market. An appraisal is at best a "best guess."

IMHO, you should forget about the equity you placed in your home. It is not an investment, it is your home. What it's value is only matters when you finally sell it and realize/ unlock the value.

Just enjoy your HOME.

Just one man's opinion.

Brad said...

I agree that appraisals tend to be about what they need to be to make the deal work.

I have had an appraisal (performed by an appraiser that has a reputation for being conservative) come in lower than the price on my buy-sell agreement. Usually, there is a contingency in the agreement that it needs to appraise for the agreed upon amount. Consequently, in my case, that basically allowed me to back out of the deal if I chose to. It appraised for a couple thousand less than the purchase price, so we offered to split the difference with the owner. He accepted, so we ended up saving $1,500 or so.

However, since the appraised price is what the bank will use for the financing, we had to pay the difference out of our pocket.

Regarding forgetting about the equity in your home, there was an interesting discussion on JLP's site (allfinancialmatters) earlier this week about including home equity in net worth.