Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
13y
That's the problem with guru's selling everyone on paying 'below market' prices, buying with '20% equity built in', or paying '50 cents on the dollar'.
Typically, when you buy off the MLS, what you pay is the full market price for the property. You CAN buy properties that need work, but you are still paying full market price for it. When you repair & resell, then you sell at market price.
That's the problem with guru's selling everyone on paying 'below market' prices, buying with '20% equity built in', or paying '50 cents on the dollar'.
Typically, when you buy off the MLS, what you pay is the full market price for the property. You CAN buy properties that need work, but you are still paying full market price for it. When you repair & resell, then you sell at market price.
This one will be my primary residence, so lower appraisal is good on the other hand since I pay less tax. But this just makes me question my analysis.
Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes
13y
Michael Stole - don't be too concerned about this. It is fairly common for an appraiser to essentially "agree" with the market (you) that the value is what a ready, willing and able buyer would pay for it when discussing 1-4 family properties. Many appraiser's can't/won't stick their necks out any more by saying in their report that you got a good deal. This is a result of the shakedown from several years ago. Many appraisers put out falsely inflated appraisals (above purchase price) to grease the financial wheels and get people qualified that weren't qualified. Now, they simply say that the market has spoken and it is worth what you offered. It relieves the appraiser of much future liability. In a nutshell, the appraiser was covering his butt.
Unless this is holding you back on financing, I would smile, take the appraisal to the tax assessor, and enjoy the lower taxes. Use it to get your assessment lowered if it can be. You can laugh on the way to the bank!
Miami, FL · Member since 2012 · 612 posts · 189 votes
13y
@Adam Johnson has made a good point here. Lenders do not trust appraisers who bring in appraisals for more than the purchase price - even if it can be justified in the market. Lender's want to make sure that the property is worth what is being paid.
This is not to say that you did not still "get a good deal." Just a few repairs, a coat of new paint etc plus some market appreciation and the property maybe right on tract when it comes time to refinance or resell.
Dallas, TX · Member since 2011 · 308 posts · 59 votes
13y
I agree with Adam. Don't worry about it. When I closed on my 4-plex, I was extremely worried that it wouldn't comp out, since there were literally no comps in the area.
The appraiser went very far out and across a major highway and used duplexes and triplexes, and what do you know, the appraisal came back exactly at the purchase price.
Appraisers CAN'T appraise a property for higher than the purchase price.
@Karen Margrave, this used to happen all the time. You'd have a contract for $100K and the appraisal would come in at $105K. Are you saying there's some restriction that they cannot do this now? So, if the adjusted comps really did say $105K, they would make the apprisal for $100K?
Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
13y
As a Realtor, I see this probably 90% of the time (I can't qualify that stat…..I'm just saying, it's very normal.) I'm not an appraiser, but I have put some thought into how they might be operating. Some may not want to cause drama, so if their appraised value is in the ballpark of the sales price, they're just gonna put it at the sales price. If it's worth one or two points more than the sales price, the seller might throw a fit on their agent for not advising them to list at a higher price.
And then you have some appraisers that just completely miss the mark. I had one come in $20,000 short last month and had to contest it with the lender. Luckily, the buyer didn't care because they clearly saw the skewed data on the appraisal and they were putting a huge down payment down anyway.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
13y
Since the new banking regulations, etc., I have never had or heard of an appraisal (in California anyway) coming in at above the contract price of a house. I have been told that it's not allowed. Personally I have never checked into it further, as we only needed an appraisal for the contract price for our buyers to qualify. So I shouldn't have said CAN'T, though that's what I've been told. Maybe it's just appraisers are more cautious and have a policy of not appraising higher. I'll check into it and see what I can find out.
Any other California agents or brokers out there? @Ethan Vegas , you're a California lender, what's your viewpoint?
Rental Property Investor · Kansas City MO · Member since 2013 · 147 posts · 9 votes
13y
I got our first appraisal back yesterday. We got the property for 71.5 though that included 3.5k of closing costs the seller picked up, so we really got it for 68k. The appraisal gave a figure of 75k. I was pleased.
My another concern is that when I sell the house later on, a low appraisal value may give me an headache.
That won't be a problem. A new appraisal will have to be ordered when you go to sell and the most recent comps at that time will dictate what it's worth not what it sold for a year or 2 ago.
Investor · White Lake, MI · Member since 2013 · 165 posts · 41 votes
13y
We just had an appraisal come back today on a house for $89k that we have under contract for $75k. Distressed properties should sell for less than appraisal value. Seems to me that when the appraisal comes in at the purchase price, you have a lazy appraiser.
We just had an appraisal come back today on a house for $89k that we have under contract for $75k. Distressed properties should sell for less than appraisal value. Seems to me that when the appraisal comes in at the purchase price, you have a lazy appraiser.
Lazy seems a little harsh. Cautious seems more appropriate. I, too, have experienced the frustration of a lower than expected appraisal. In my opinion, the banking industry is still over-compensating for being "spanked" after the whole debacle that occurred a few years ago. Appraisers were also spanked, so many are being overly cautious now as a result, in order to protect their licenses and livelihood.
I operate in an area with few comps, so the appraisals I need to have done I have to pay extra for (almost double what it costs for nearby cities with more comps). This is due directly to recent changes in what is considered acceptable and another example of too much government intervention in our daily lives.
Miami, FL · Member since 2013 · 98 posts · 27 votes
13y
@ Karen Margrave, my primary residence, bought in LA 20months ago appraised by a major bank for a whopping $140K above or 30% over purchase price. The house sits exactly at the gentrifying border of a neighborhood, and when i looked at the appraisal report recently, i've noticed that all the comps for that valuation were pulled within 5 blocks south of me, which is a better area. If nothing was selling north, that's all they had to use
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
13y
Someone commented earlier that MLS-listed properties typically sell at full market price. This may be the "typical" case, but it definitely should NOT be typical for an investor. I buy almost exclusively MLS-listed properties. There are many ways to get a good deal on an MLS-listed property (I could probably write a book, or an e-course, or coach people in this area if I weren't so lazy). Unlike the stock market, real estate markets (even the MLS) are not efficient markets. And we as investors take advantage of the inefficiencies. Otherwise, no one would ever be able to wholesale flip an MLS-listed property. Now, I will admit that it may be more difficult to find a good deal on the MLS, and maybe the discounts may be less than those found by other methods, but deals are available on the MLS. I do it all the time.
Miami, FL · Member since 2012 · 612 posts · 189 votes
13y
@Karen Margrave if there was a law out there that restricted the ability of an appraiser to bring a market value above the purchase price, the law would be dictating market value, restricting a free market and seriously tying the hands of a real estate professional.
Perhaps what you have been hearing is that a lender cannot write a loan based on an appraised value that is above the purchase price. The appraisal can come in higher, but the lender will not count the difference as equity. Thus, unless there is a large and obvious difference between the purchase price and the market value, the appraiser will often "hit" the purchase price as long as it is within the range of market value.
@Michael Stole
Appraisals only have a life expectancy of 6 months. After that, a new appraisal is needed. Additionally, a future buyer will never get access to a prior appraisal unless you give it to them. Appraisals are not a part of public records. They are a confidential agreement. So there are no worries here.
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
13y
@Jon Klaus I'm with you. I hate that they even ask about the purchase price. Though I guess if they didn't know where the ball park was, they would forever be failing to find it! So.. take the good with the bad I guess.
Miami, FL · Member since 2012 · 612 posts · 189 votes
13y
The problem lies in the presentation of the appraisal report. The true market value of a property is no one single number (like my house is worth $189,500) rather it is a range of numbers (his house is worth between $180,000 and $199,000).
The philosophy behind this is that if you took 100 equally motivated and educated buyers and had them all make an offer on that property, they will not all offer the same number. Some will be way too low, a few will be hitting the stars; but the vast majority should be within around 10% of each other. This is the market value of the property.
If an appraiser could state a market value range in the appraisal, then I would whole heartily agree with not revealing the purchase price. But as it is, if the appraised value ($188,000) comes in less than the purchase price ($189,500) - even thought it is well within the range - the lender will only write the loan based on the $188,000 value and now everyone hates the appraiser.