What is an appraisal for anyway? Episode #190

Hello! Welcome to Todd Miller TV. I want talk about appraisals today. What they mean and what they don’t mean. And what you have to be careful of with an appraisal. So an appraisal is nothing more than somebody’s estimate of value. It’s no different than a Real Estate agent’s estimate of value when they come to a listing appointment. If you took 10 appraisers, and have them all appraise a property, they would all come up with different values, there’s nothing that it’s not like a government certified seal of value or anything, it’s just and estimate, and where they’re really use for dominantly is on Loans. Lenders require appraisals as a 3rd look at the property except for the buyer the seller get together and create a price. But they’re getting a loans. They wanted just to make sure they’re not over lending or being scammed/some sort of fraud. So, you know, this is why this is important to know because Let’s say you’re buying a house cash, you’re probably not gonna get an appraisal. Why? ‘Cause you’re paying $350 to $500. It doesn’t really matter, you’re paying cash for it, there’s no other loan, you’ve probably done your 2 diligence. And what if the appraisal come out low? Are you gonna like ask for less money, the seller probably gonna say “have a nice day” which is what happens very commonly on the cash purchase. Cash purchases are usually are a little bit below market value. They can be so, That’s another reason why most people with cash don’t get appraisals. The other thing to keep in mind is that appraisal for FHA purchases stick with the property for 90 days. So, I’m gonna give you an example. Let’s say that you are/the house is $100,000, and you have an offer on it for a $100,000. Appraisers comes out and say it’s only worth $97,000. And you’re the seller, and that person who’s buying the house for a $100,000 is getting a loan. And they can’t now get a loan unless they do one of 2 things. Either A, we change he purchase price to $97,000. Or B, they come up with the difference, meaning they’re only gonna loan based on the $97,000 value so that you can still have the buyer come in with the difference in cash which is what happens very common. But what happens if/let’s say you throw the buyer out and say “forget it!” And you go and you put the house back on the market and get another buyer. Well if you’ll get an FHA loan, when the appraiser goes in to the appraisal, they’re gonna see that it already had an appraisal. For 90 days they can’t do another appraisal on it. So, you’re gonna be stuck, without appraisal for the most part. So there’s risk and error on the seller, and there’s also some risk on the buyer. The risk on the buyer is that you’re, you know you find the house, you can’t wait to move in to, you just have enough money to pay for closing cost and get out of the deal without any money left over, and it doesn’t appraise and the seller comes back and says “I want you to pay the difference.” It doesn’t make sense to me that a house could be listed for one amount, get 10 offers, many of them over that amount, and then have it on appraise because what happens is the appraiser don’t care about it, they don’t care how many offers, all they look at is what its listed for and they look at the other houses around it. A lot of times if it’s a lot nicer, it’s got a bigger lot, they can make adjustments, but a lot of times they won’t make big enough adjustments for that, sort of like the wow factor. So it’s very common that we see houses not appraises. I would say about a 3rd to half of all the properties in loans don’t get a good appraisal on them when they appraise for the value. That’s actually good. What that means is that the market is going up, what that shows is that appraisers looking historically at the last 3 or 4 months what homes sold for. But if they start to sell for more, the appraisers are gonna look back and go “well no, it’s only worth this.” So this was very common back in 2004, when the market was really taking off, appraisers, we had a hard time getting appraisals on properties. We’re starting to see it again, so maybe it’s a good sign. But, I thought I would share that with you. You know, what the appraisal is, how it plays in, whether you’re the buyer, whether you’re the seller. The bottom line is, you always have room to negotiate after you get an appraisal between the seller and the buyer, come to some terms, sometimes they’ll reduce the price, sometimes they won’t, sometimes they’ll come halfway and make you come in with the difference. So best thing you can do and what we do is we negotiate it out. Whether we come to an agreement before or we just have to end it, killing the deal. So I thought I would share that with you. That is my update for today and hope to see you on another video. Thanks!