Appraisals...seriously, what's the point?

Question

If the appraiser is starting with the purchase price in their pocket and then the appraisal comes out to that exact figure - I see this as a wasted expense. Don't get me wrong, I was happy to see it come out there but what's the value in that?

Had a 71A and a URAR (two properties one loan).

Had a 71A and a URAR (two properties one loan).

Steve Vaughan · Answer

I hear ya, Brian.  Wait until you're doing a commercial apt purchase and the golly-gee  mirror to your PP 'estimate of value' costs you $3500 for the privilege.

It's a racket, really. You are paying to cover the banks' risk. I guess they can't afford it LOL.

All of my commercial lenders have told me they need me to purchase an appraisal whether they are lending $10 or $10M. Even a no-brainer at 40% LTV? I ask. You bet. Another month to get one and another $3500 they say.  Oh- and you'll need to do it every 5yrs as the call will not automatically renew.

I do seller financing most times and am paying my commercial loans off.  Haven't used a bank loan in 5 yrs now. Thanks for bringing this up!

Russell Brazil · Answer

It's important to understand what the appraisal is for. It is not for the benefit of you the consumer. It is not to find an independent value for the property.

It exists to protect the lenders investment in the property. Is the amount of money they are lending consummate with roughly how the market values the property. Is their money safe in this property. That's why it exists.

Michael Seeker · Answer

Unfortunately it's part of the business.  Banks are not going to lend without an appraisal, and appraisers have no reason to risk their license/reputation by giving a true opinion of value that might contradict a contract price.

If they are given the answer before they start, all they need to do is determine if the contract price is within a reasonable buffer of their opinion of value and if so, then the contract price becomes the appraised value.

Think about it this way, what if you had a contract for $250K and an appraiser came in at $248,500 - you would now have to bring an extra $1500 to the table or see if you could sweet talk the seller down $1500 (or maybe split the difference).  While this could work in your favor, it would be very annoying and you'd  be asking "Why didn't he just use the contract price?"

Lee S. · Answer

i agree, I've had the same experience with purchase appraisals.  However, with refinance appraisals they seem to come in low from my recent experience.

Appraisals...seriously, what's the point?

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