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Avoiding an Appraisal

by Garrett Steele on Aug 7, 2015 General Appraisal 668 Views

Most buyers and sellers of real estate just want to keep their expenses as low as possible.  They will volunteer the fact that they don't want an appraisal, don't want to pay for an appraisal and don't see the need for an appraisal.  When you are dealing with other people's money "OPM" however it's hard to get away from an appraisal being required. 

Banks are one of the biggest users of appraisal services, beyond the fact that they have federal requirement to appraise real property assets for federally backed mortgages, they simply don't want to find out that they just loaned money on a property and it's not worth what they loaned.  So it's tough to avoid an appraisal when you are working with a bank.  There are however exceptions.  If you loan is only going to have a loan to value ratio of say 50% there is a good chance that the bank will just waive the appraisal.

For the banks and most other lenders it's all about risk, so if you have a stellar 800 credit score, large cash balances, other assets and a reasonable loan to value ratio on the property again you may find that you can escape the requirement for an appraisal and move straight to a closing.

It used to be years ago that you could get away with using an appraisal completed for another person or for another purpose.  You could take it from one lender to the next and it wasn't a problem.  It's important to note however that those days are gone, appraisers now state in their reports specifically who they are completed for and for what specific purpose they were completed, and third-parties, mortgage brokers and banks won't accept them.  So relying on an appraisal not completed for you is generally not going to help you avoid the fee.  My reports warn potential users, who are not my clients, that I am not liable to them so if they rely on my opinion and I'm wrong, it's not my problem, it's theirs.

Automated Valuation Models or AVM's are everywhere today, but try this, go to any 3 of them and see what values are indicated and compare them.  There is often a significant disparity between the models which tells you something about their accuracy.  Yes, you can save money by not having an appraisal completed and simply just use an online AVM, but it's not going to convince anyone.  AVM's are not trusted and that'd why the banks don't use them.

Some mortgage lenders and brokers offer a free appraisal if you work with them as an incentive or a reward for your business.  The appraisal still gets done but you the borrower don't have to pay for it.  When you are working with a private, hard money lender and you have to pay an origination fee an appraisal is often paid for out of that fee.  If an appraisal is not being completed as part of that fee you have to wonder whether there was any funding really available.

If you are paying for real property with cash of course an appraisal is not required.  There are some buyers and sellers who are so active in a market or submarket that they know supply, demand and sales prices as well as an appraiser.  These buyers and sellers are on the front line and often the market makers.  Occasional cash buyers and sellers lose track of the most recent sales, they may think they are experts because they have bought and sold real estate, maybe on a regular basis, but market prices can change quickly.  Appraisal avoidance is possible but for many investors and speculators skipping the appraisal can prove to be a major mistake.

Banks and lenders can become unconcerned about their potential for loss if they are sufficiently protected by the LTV, the ancillary collateral of the borrower and an excellent credit rating.  Land investors and speculators are however always at risk of selling too low or buying too high.

Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County.  His Internet website is http://www.horizonappraisals.com

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/4558-Avoiding-an-Appraisal.html

http://www.horizonappraisal.com
Detroit Area Commercial Real Estate Appraiser
Garrett1

Garrett Steele

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Garrett J Steele, ASA, MRICS, BAE at gsteele07@gmail.com is an experienced Michigan Certified General Appraiser specializing in commercial real estate appraisals in Charlevoix, Crawford, Genesee, Lapeer, Livingston, Macomb, Oakland, Roscommon, Washtenaw and Wayne County. His Internet website is http://www.horizonappraisals.com

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