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Appraisals, Underwriters and the Third Rail of the Housing Recovery
In theory, an appraisal is an independent evaluation of a property by a neutral third party to determine its likely worth in the open market.
In practice, it has become the de facto final word on a property’s worth, overriding the agreement between a willing buyer and seller.
How is it that the guestimation of value has supplanted the actual sale as the ultimate arbiter of worth? That the tail has come to wag the dog? Thank your friendly financial institution.
You see, appraisals are rarely ordered for cash transactions. Why? Because the buyer has already reviewed the recent sales comparables and negotiated the best terms he/she could with the seller before arriving at the final sales price. Appraisals are requirements of (most) financed transactions because they are really not for the benefit of the buyer. They are an added layer of protection for the lender that is putting up the bulk of the purchase money.
Certainly an understandable requirement from an institution that is taking on the risk of lending money against a property that may or may not represent suitable collateral, depending on the drooling-idiocy factor of the buyer. The bank demands an appraisal to validate the purchase price ... more

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