Should I bother with an appraisal ?

Question

This is for a cash offer. The sellers have come down in price but I'm considering waving my appraisal contingency in order to further negotiate. The inspection came back and I'm good with the property. Nothing serious just that some cap ex-items (roof, furnace) are nearing the end of useful life and need to be budgeted for. The plan is to refinance this property in 6-12 months.

Russell Brazil · Answer

Appraisals serve no purpose in a cash purchase.

The purpose of an appraisal is one of many tools a lender uses to mitigate risk.

Do an appraisal the day after closing, the appraised value is the price that was paid for the property.

Will Fraser · Answer

True, but wouldn't a BPO serve the same purpose, but perhaps simpler, quicker, and less costly?

Eliott Elias · Answer

You can waive this, make sure you’re confident in its value. Have your realtor run a CMA for you.

Brad S. · Answer

*******************************Well, I think I have a different angle than all the previous replies.My first reaction is ...if you aren't relatively confident in your estimated value (ARV-After Repaired Value) and what your plans are with the property, then I would question your choice to take on the risk of this deal. But, I see that you are new to real estate, so I understand the concerns. And, I don't mean any of that as a negative in any way. Bottomline is NO, I wouldn't bother with an appraisal. If you are unsure of value, then I do like the other suggestions of getting an Agent/Broker BPO/CMA instead. I would find 1 or more "good," very active Realtors in the area to help you with that. They are the ones that know more of the nuts and bolts of what is happening in the local market, at "street level". They are more in tune with the trends and pre-trends of markets. Not all of them, but the ones that are active in a particular market, that's why I stated find "active" Realtors. Also, if they are in a larger office, they typically have access to more market data and they hear the other Agents experiences in the market, thereby leveraging on their company affiliations.*******A few more thoughts ....brain dribbles.As a Certified Licensed Appraiser for decades, I do take it for granted that I am very comfortable with valuing and looking at data. But, I originally started with that pursuit because I thought that was one of, if not the most important part of the process. Afterall, if you are far off on your value assessment than your good deal, becomes marginal or a struggle to stay in the positive. I do think that valuation is often somewhat overlooked by the beginning to intermediate investor. A good, active investor in a specific market will tell me what is happening in a market, probably more than I could tell them. Sometimes, it not about being right or even accurate at times, but it is about properly assessing the risks, or "bonuses, of a specific deal. I have gone into deals where I couldn't confidently estimate an ARV, but I had an idea of where the potential risks (or bonuses) could be. And that helped to mitigate those risks in some deals and assisted in bonuses in others. I have lost money on deals, but those were due to construction issues (stories for another time), not to my risk assessment.Another thing is that Appraisers are generally looking backwards to give an estimate of today's value. We are looking at yesterday's sales and maybe some actives and pending sales, but generally we are looking at the "proof" of value of those properties that have already closed escrow. You should be more concerned with what the property is going to be worth, at the time of your exit. So, if your "exit" is to cash out refinance after a rehab, than you want to value it as if already rehabbed, and market trends may change also, etc. Also, as an appraiser, you can't pay me enough to care about assessing your deal, as much as you care. In other words, if you want to be a good investor, learn to be your own "appraiser."

Also, when you go to refinance later, it is the "luck of the draw" when you get an appraiser assigned to your deal. So, the value you get today, won't have a bearing on the value you get after rehab and at the time you go to refi. In the past, I have had some bad appraisals on my deals and my own house, and being an appraiser, myself, did not help much in those situations. But, understanding the process PRIOR to my acquiring a deal, has helped understand the potential for those issues on a particular deal.

Will Fraser · Answer

Usually . . .

Sarah Beilke · Answer

Hello!  I am of a differing opinion here and it's because I know you plan to refinance the property in 6-12 months.  When you refi with a bank they are most likely going to require an appraisal so why not find out now an estimate of what they think the house is worth.  There is nothing saying you have to back out of the deal because of what the appraisal comes back at but I would personally rather be armed with that information now rather than later.

Joe Norman · Answer

Personally I would waive the appraisal unless it's a very unique property. A CMA will give you just as accurate of an idea of value.

Jennifer Volek · Answer

Who says the house is worth what they're asking?

Theresa Harris · Answer

You should have factored the roof and furnace into your offer.  Even if you do get an appraisal now, how confident are you that the price will be the same in 6 months when you get financing?

V.G Jason · Answer

I waive appraisal on cash offers. I put that that in the original bid as if that's worth something to the seller.

Should I bother with an appraisal ?

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