Appraisals: Used mostly for loans?

Question

From my limited understanding and searching around on google, it seems appraisals are mainly important when there is a loan of some sort involved. Whether its a bank or hard money lender, and the former typically both require them.

So with that being said, are appraisals even used for a cash only purchase in a typical retail flip, or rental flip? It seems there is little use getting an appraisal on a finished product if you are not using a loan. Because if its ARV your going after you have comps and tax roles, appraisals dont really contribute to that.

I would appreciate any clarification, thanks for your time

Arthur Garcia · Answer

Samantha,

You don't need an appraisal to buy a property in cash.

Since ARV is a moving target (changes every day) appraisals are a way the banks/lenders can determine the "official" market value of the property.  Depending on the appraiser, your COMPS may not be accurate, which means the LTV (loan to value) may have to be adjusted.

For example if the contracted purchase price was a 100K and the appraisal comes in at 85K, then the value the bank would use for the loan would be based off a value of 85K vs 100K.

In this instance, Either the purchase price will have to be lowered or the buyer and seller must work out another arrangement for the 15K balance.

I hope that helps a bit.

AG

Bill Gulley · Answer

If you are very secure with your opinion of value you don't need an appraisal. Most are for loan purposes but there are other matters where appraisals are done. Hope ya know what you're doing.....good luck.