Q: In a recent story, you said that purchasing an appraisal from a professional appraiser would be a “waste of money” since the bank will require their own appraiser.
I disagree. A smart buyer should order a professional appraisal from an independent appraiser, because the online value services are unreliable and often inaccurate.
Real estate brokers earn a commission based on sales price of the home and may have other reasons to focus the buyer’s attention on another property where they will earn a higher commission.
Unpaid broker price opinions (also known as BPOs) are very risky. With thousands or tens of thousands of dollars at risk, $350 to $450 is money well spent for an independent professional opinion of value. Buyers spend that much for a home inspection or a sewer scope.
Bank-ordered appraisals must now go through appraisal management companies (AMCs) and these companies hire the cheapest appraisers and require short completion deadlines for appraisals used to make loans. This means that the lender ordered appraisals may be declining in quality, and the appraiser may be afraid to conclude a below contract price for fear of reprisal and loss of work from the AMC.
I would recommend ordering an independent appraiser before making a purchase offer. If the appraisal is higher than the price you wish to offer you’ll be happy. If it is lower, the buyer can use it to negotiate the purchase price to more favorable terms.
Either way the buyer is better informed and is less at risk of overpaying for the property with an independent professional appraisal report.
A: You must be a professional appraiser.
While you’re right that a professional independent appraisal is optimally what you’d want to do, it’s a waste of time and money in the real world, something that the appraisers haven’t been able to get their minds around.
And, while I’d never recommend getting an online appraisal, because I agree that they’re unreliable, the bank is going to require its own appraisal of the property and won’t accept the buyer’s independently purchased appraisal. Also relying on sites that generally indicate the value of properties can be misleading. Those websites frequently have inaccurate information and the values for properties can vary greatly. But if you’re a buyer and obtain an appraisal before you make an offer for a property, you’d wind up paying for two appraisals, or $900 to $1,000, and for what?
While an appraisal is of some value to lenders, who must have some sort of written “proof” of value, in most major metropolitan areas where there are frequent purchases and sales, a buyer working with a good real estate agent will have a pretty good idea of the value of a property. In fact, frequently those appraisers that work for lenders will obtain some of their information for an appraisal from the real estate brokers in the transaction.
I think that the marginal benefit of hiring your own appraiser to assess the value of property before buying it isn’t worth the cost, except in some circumstances: You’ll need a professional appraisal in the event of a death for the estate; You’ll also want to appraise commercial property, or any other type of property that would be valued on income in addition to local market conditions.
What a buyer really needs to do is make sure that the contract includes an appraisal contingency clause. That way, if a property doesn’t appraise out – which is happening more frequently these days, the buyer can withdraw from the deal without a penalty.
Certainly, there’s a role for appraisers in commercial real estate transactions and other parts of the real estate market. But we’ll have to agree to disagree when it comes to real estate appraisals for buyer’s before making a bid on a home. Thanks for your comment.