Profile picture for windsorandduncan

How do you know if the house you are buying is worth the appraisal?

  • June 12 2011 - Benton
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Answers (5)

Profile picture for Blue Nile
It appears the question may really be "what is the intrinsic value"?  "How do you know if a price is not still bubbled"?

There are only 4 ways that I know of; and all are required:

1) Compare to historic price adjusted for known inflation rates (devaluation of the dollar).  For example, take 1997 sold prices, and extrapolate using 2.4% annual CPI inflation, or a more generous 4% annual assumed inflation.

2) Compare monthly ownership costs to monthly rental costs, for the same equivalent property in an equivalent location.

3) Compare population demographics and resources/job opportunities, to available housing stock, to determine if the housing demand will increase or decrease in the near and distant future, and the rate of change.

4) Under worst economic situations, what is the "lowest" price that something can go before people will refuse to sell because it just doesn't make any economic sense.  Obviously, if there is no equity in the housing, there is no such number for many people; but there still is some point that a buyer would be thinking a gift was being passed up if they didn't accept; and that value is not the minimum of $1 in most cases.

Neither a Real Estate Agent nor an Appraiser are good at telling you the minimum future value of an asset.
  • June 13 2011
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Profile picture for SoCal Engr
For what it's worth, there is only one way to actually establish the value of a house. Close a sale on the house that is not a distress sale.

Everything else is an estimate of value, with the appraisal carrying authoritative weight. A CMA is only a guestimate, carrys no authoritative weight, and is only as good as the REA who generated it.

For some reason, REA's keep saying they can determine the value of a house. They can't. They can prepare a CMA...it's not the same.
  • June 13 2011
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Profile picture for kapyarets
There are two way to establish the value of the house you are planning to buy.
1. Before you place an offer your buyer representative should give you CMA of the property. It's the same market study that seller received from his agent before placing the house on a market. It will show you where the listing price came from and how that particular house competed with others on the market.
 2. If you are planning to obtain a mortgage your bank with make a second evaluation of the price by sending appraisal. Bank appraisals now became very conservative, so it will help you to understand if you are paying a good price for the property. 
  • June 12 2011
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The bank through which you're financing will send an appraiser (you will have to pay for it) to assertain the value of the property.
  • June 12 2011
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Profile picture for SoCal Engr
By definition, the house is technically worth the appraised value. That is why the appraisal is required by the lender - to determine value.

Whether or not you feel like paying the appraised price (i.e., is the house worth that price to you) is a personal decision.

Different perspective...

If the question you are asking is "Is it worth having the house appraised?", that is a different answer. The CMAs you should have been provided will give you an idea of general value. If you're serious about making an offer, then the appraisal is worth the price - as it protects both you and the lender from over-paying for the property.
  • June 12 2011
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