Appraisals a True Picture of Value? Hardly.

avatarthumbnail.jpgAppraisals on real estate, at least appraisals tied to a purchase or a refinance, are an evaluation of the risk the lender is willing to take and are made to justify (or not justify) the asking price.

Appraisals are not measures of a property’s inherent value. For proof, look no further than the appraisers’ need for the current purchase contract.

If the appraiser was trying to determine the true value of a property, would the price to which the two parties agreed really matter? Of course not. Comparable properties would be reviewed, formulas formulated and the final number would be presented – whether it related to sales price would be irrelevant, at least to the appraiser.

But that’s not how it works. Appraisers always ask for the sales contract when putting together an appraisal. Why? Because that’s the number they’re trying to justify if at all possible. That’s the only number the lender cares about – is the house worth at least that much or is it not?

Remember those geometry proofs we all were tortured with in high school?

Completing an appraisal while holding the purchase contract is like one of those proofs – you’re not looking for an answer, you’re looking for the theorems that prove the answer.

It’s the difference between proving the Pythagorean theorem and being Pythagorus, creating the theorem in the first place.

[tags]Phoenix real estate, appraisals[/tags]

About Jonathan

Jonathan Dalton is a 30-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.

  • Great article……tried explaining that many times…..folks just don’t get it