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Appraisals
When do
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In the real world, very few individuals order appraisal reports
to establish an offering price or to substantiate a purchase price.
At the point that an offer to purchase (in a typical residential
transaction) is made, the price has been set by other parties, not
the purchaser. The price has been determined by the seller, who
wishes to obtain the highest price possible, or the agent, who receives
a percentage of the price as compensation and often represents the
seller in the transaction.
The real estate agent will typically perform a comparative market
analysis (CMA). The appraisal laws in most states allow real estate
agents to perform CMAs without an appraiser's license or certification.
A CMA is a necessary part of the agent's preparation for a listing
and consists of examining sales of properties in the area to arrive
at a listing price. The reliability of the CMA depends upon the
agent's experience and the characteristics of the property. The
agent will suggest a selling price to the seller based upon the
analysis. However, neither the seller nor the agent are bound by
the results of the analysis, and the agent is not required to follow
any formal procedure in completing the CMA. If a seller wishes to
list the property at a price higher than the price suggested by
the agent, then the agent may be forced to accept the listing at
that price or risk losing a commission.
Purchasers believe that they are getting a good deal if they make
an offer lower than the listed price. But how far above the market
value was the property listed? 10%, 15%, maybe even 20% above the
fair market value? A negotiated price of 10% less than the listed
price on a property that was listed at 20% above its value is not
a bargain. The agent cannot tell the purchaser that the offered
price is higher than the value, or even higher than their own CMA.
In most states, they must submit the offer to the seller.
The seller of a property may want to order an appraisal before
listing the property. Of course, the cost of the appraisal is always
a deterrent, especially if the seller knows that a buyer will pay
for it when applying for a loan. But the appraisal is often justified.
The seller could lose a sale if the property appraised for less
than the sale price when appraised by the appraiser.
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