Q: I am writing in regards to a recent question in the column about starting to invest in real estate.
I am not surprised, but am slightly irritated, that when you advised this person to “put together a team of advisers,” you did not include an appraiser. If more and more buyers, investors, sellers would seek the advice of a residential appraiser we might not be in the spot we are today with the home values out of whack.
No, that is not the only answer, however, it would make more sense. It is sad that the “ethical appraisers” do not get more recognition. It seems as if they are just a small part in the transaction. No one understands the valuable part they play.
Well, that is if the “real estate team” lets them do their job and not coerce them in to adding value where there is not.
A: I agree that appraisers have been marginalized in the real estate process. But it never fails to amaze me when the appraised price comes in exactly (to the dollar) at the sales price.
Coincidence? Hardly. If appraisers have been marginalized in the real estate process, it’s because homeowners, buyers, and sellers have no say whatsoever in the hiring of an appraiser. They just pay the bill.
The lender decides who will do the appraisal and the real estate agent assists the appraiser in providing documentation that will make sure the number comes in at the right point for the deal to close.
Some lenders have pressured appraisers to come up with the “magic” number that will get the deal closed. They’ve threatened to withhold business if the appraiser doesn’t conclude that the property is worth what the buyer is willing to pay.
As an industry, appraisers haven’t been as vocal in standing up for their third-party independence as they could have been. In the meantime, why should home sellers pay for a separate appraisal when asking three real estate agents to prepare a comparative marketing analysis from the same data will yield virtually the same conclusion for free?
In terms of investing in real estate, which was the original question, I don’t know how an appraiser brings value to the process. When you invest in property, it’s important to know what the income stream will be and if that’s enough to carry the loan and other costs of the investment. If you’re getting a loan, you’ll pay once for an appraiser in order to get the loan approved. I’m not sure why anyone should pay for an appraiser before making an offer for a property.
But please feel free to make the case at the Forum on my website, www.thinkglink.com/forum.
Jan. 22, 2008.
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