Why should appraisals be ordered?

• To Obtain a loan or mortgage
• To Determine an Offer or Selling Price on a Home
• To Settle an Estate
• To Establish the Replacement Cost for Insurance
• To Get Just Compensation in a Condemnation
• To Contest Raises in Property Taxes

• It has two sources or repayment: the owners income and the value of the property
• The respnsibility to repay the loan is not based on the property's value, so the purchaser is obligated to pay the note even if the property value declines to zero.
• The loan may be insured or guaranteed by a government agency.
• The government does not promise to pay the owners debt if the property value is wrong.
• If the loan is greater than 80% of the value, a portion of the loan may be insured by a private mortgage insurance insurer.
• There is no decrease in risk for the owner regardless of the loan-to-value ratio. The investment by the purchaser is the same, a mixture of personal cash and a loan that must be repaid.

To determine an offering or selling price

Purchasers often believe they are getting a good deal if they make an offer lower than the listed price. But they don't often inquire as to how far above the market price the property was listed. 10%, 15%, 20% above fair market value? Remember, a negotiated price of 10% below the listed price on a property that was listed at 20% above it's value is not a bargain.

The listing price of a home 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.

While the real estate agent will perform a CMA (comparative market analysis) in order to suggest a selling price, the seller is not bound by the results of the CMA. If the seller wishes to list the property at a higher price than is suggested, this may be the price the home is listed at.

When you make an offer on the home, you are generally asked for a preapproval certificate from a mortgage company. You will probably also get a home inspection to determine that there are no hidden defects. We suggest that you also get an appraisal on the property to ensure that you are paying a fair price. You will need an appraisal to obtain your loan, so why not do it first?

To settle an estate:
Taxing authorities such as the IRS often require appraisals to establish the value of an estate when a death occurs. Generally, the survivors want a conservative value estimate that limits their tax liability as much as possible. Most estate appraisals are ordered by attorneys, not by the survivors.

To establish the replacement cost for insurance:
Appraisals obtained for establishing the loss risk in case of fire are often limited to providing an estimate of the replacement or reproduction cost of the improvements. The insurable value may not be representative of market value and usually does not include the value of the land.

Insurance agents may order appraisals when their standard cost service manuals are not adaptable to an a typical home or structure. Or property owners may order appraisals to contest the annual appreciation increases mandated by some insurance companies, especially when the increase in the insurance coverage results in an unrealistic Premium.

To establish just compensation for condemnation:
The appraiser may represent either the landowner or the condemning authority. Usually, the government entity that needs the land for public use orders an appraisal and offers to purchase the land for the value indicated by the appraisal. If the landowner feels that the amount offered by the condemning authority is not enough, then the landowner may also order an appraisal. If the parties cannot agree on a price, then the matter will be settled in court with each appraiser testifying on behalf of their respective value estimates. The appraisers are not advocates for their client; they are expert witnesses trying to support their value estimates.

Often landowners do not consider ordering another appraisal from an appraiser of their choice. Usually, they try to settle with the authority by negotiation rather than incur the expense of an appraisal.

It is obvious that the landowner's negotiating position would be enhanced if a supporting professional appraisal report were available.

To contest high property taxes
If property owners feel that their property is assessed too high, then they may order an appraisal from a qualified appraiser to contest the assessment.

In certain parts of the country this practice is common, but many property owners are not aware that this avenue of reducing their tax burden is available.

The return on investment is easy to perceive when the cost of an appraisal is compared to several years of lower taxes.

Just a note, but if the appraisal comes in higher than the tax base that you have been assessed, you do not have an argument and they can raise the taxes if you show them an appraisal proving that the city is too low!

Sometimes these assignments include an appearance in front of the equalization board to argue the landowner's case. The appraiser, however, must be careful not to base the appraisal fee on the dollar amount of the appraised value, which could be a violation of the USPAP.

Harry Smith email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell    1-248-514-9000	Drew Smith email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell    1-248-703-7770
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