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Appraisals, the Lakers and that Damned ESPN Scoreline Crawl

Appraisals, the Lakers and that Damned ESPN Scoreline Crawl

avatarthumbnail.jpgTaping the NBA Finals, checking in on Arizona State baseball, all the while aware that turning the station at the wrong moment could lead me to learning the score of the game I was trying to watch on tape delay.

It probably was inevitable that I’d see the final score of the game and so it happened with Arizona State batting in the seventh. Throwing an arm up at the last minute, I managed to block most of the screen so all I could see was the final number of points scored by Orlando.

The rest of the game was spent calculating how many more points the Lakers would need to best what I already knew Orlando had. I was rooting for a certain number more than the aesthetic result.

In other words, I had just become an appraiser holding a sales contract. I knew what the final number I needed was, it was just a matter of figuring out how to get there.

Many think of an appraisal as a determination of a property’s intrinsic value. It’s nothing of the sort. Rather, it’s one person’s opinion of the value for the purposes of helping a lender (or in rare cases a cash buyer) to determine whether there’s sufficient equity to justify a loan (or a cash purchase.)

The first thing every appraiser does is ask for a copy of the sales contract. If we’re going out to find out the property’s intrinsic value, what difference does the contract make? It probably is little more than coincidence that the appraised value often comes in very, very close to the final number on the sales contract.

As I told one client, it’s the difference between proving the Pythagorean theorem or being Pythagorus. Your average eighth-grade student already knows the answer, they just have to prove it. The ancient Greek didn’t have such a luxury.

If appraisals were pure testaments to a property’s value, you wouldn’t have the lenders using those appraisals to determine loan amounts hire second appraisers and/or hint that an appraisal needs to be lower than what came in because of the state of the market.

But the truth is the lender couldn’t care less what the home’s true worth may be. It only cares whether the loan is a good idea. That’s all. And the old-fashioned notion that value is the point where seller and buyer meet is a little to simple to work with.

Playing the appraisal game isn’t much fun but it’s a little different. Last night’s game was fun, if only because I knew I didn’t have to sweat Rashard Lewis’ late 3-pointer … with the final score in hand and the Lakers already over that mark, the celebration had long been underway.

[tags]Phoenix real estate[/tags]

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