Common Mistakes When Analyzing a Real Estate Deal:  Trusting The Appraiser
by John Occhi, Hemet CA REALTOR®  
Mission Grove Realty  


If you Want to Read More about Other Common Mistakes Made when Purchasing Real Estate, Follow This Link.

 

Another common mistake in analyzing a real estate transaction is to put too much emphasis on the appraisal.

Granted, there is a time and place for an appraisal, but unless you actually hire and pay the appraiser, how can you be sure of what you are getting.  When you hire the appraiser to analyze a Hemet real estate transaction then you control what criteria they are looking at.

For example, lets say you want to buy a Hemet preforeclosure home for sale through a short sale.  The homeowner may have recently taken out a loan that has them n trouble, once their 6 month introductory teaser rate reset.

I have a listing right now that appraised for $395,000 in July of 2006.  It has been on the market since March, 2007 at $299,000.  So how valid could that appraisal actually be?

If you were buying that Hemet home for sale and relied on the appraisal that the seller provided then you would be in a lot of trouble.  First, an appraisal is typically not valid for more than 3 months.  I don't know about your market, but the market in Hemet CA is a lot different today, than it was 3 months ago.  So how valid is an appraisal that was done so long ago.

Another home I recently sold was owned by a pool contractor -they type that builds elaborate rock pools.  His yard was large, at .38 acres.  He had a fellow pool contractor estimate that it would cost in excess of $500,000 to duplicate the pool, hardscape and landscape that graced every inch of this space.  Now this was a track home that recently had a model match sell for $340,000.  So, my client believed he had a home worth more than $800,000.


To provide a dose of reality, we hired a local appraiser and wanted him to squeeze out every bit of value he could.  The appraisal came in at $650,000 in October 2005.  We listed at $695,000 - disclosing the appraisal and the contractor estimate to all who toured the property.

By the summer of 2006, we resisted the property at $595,000 when the new appraisal came in at the lower price, because of the comps that had fallen off of the radar.  I ultimately found a buyer for the home who offered $520,000 and the seller snatched it up.

My point is - how valuable is the appraisal when someone else has paid for it? - Especially if it is the sellers appraiser.

As an investor, it makes perfect sense to develop a relationship with one appraiser who understands what you are looking for in a property and a real estate deal.  Always make your offer subject to an appraisal by the appraiser of your choice - and then you know what you are getting yourself into.

I hope this helps.  Do you have an appraisal horror story you would care to share - please chime in.

Now Have a Blessed Day,

by John Occhi, Hemet REALTOR®  
Mission Grove Realty  
Preforeclosure Specialist

Until Next Time, Have a Blessed Day,

John Occhi, ePRO, REALTOR®
DRE Lic No: 01444168


ePro,John Occhi,www.johnocchi.com,realtor      Certified Probate Real Estate Specialist Logo Awarded to John OcchiFive Star Logo,Certification,REO,Five Star Institute     

Excellence in Real Estate,Team Log,John Occhi,www.johnocchi.com,hemet,san jacinto,CA  

This blog and the contents written here is the intellectual property of John Occhi, Temecula - Murrieta, CA REALTOR® in the South West Riverside County region of the Inland Empire of Southern California.  The views and opinions expressed are just that - views and opinions of John Occhi and those who comment.  Please note that I am not an attorney or a tax professional and any time I discuss either topic, I suggest you consult with the proper professional for relevant assistance. 


I am proud to be a full time REALTOR® who is proud to be a contributing member of the ActiveRain community.

 Protected by Copyscape plagiarism checker - duplicate content and unique article detection software.

 

9 Comments on Common Mistakes When Analyzing a Real Estate Deal: Trusting The Appraiser

AUG
12
2007
159,048 Points 17 Featured Posts Outside Blog Called Shot Master

OK John, so this is the house you tried to show me. Wow. I remember driving all around it but not getting a look.

Appraisals have to be "timely" as you said. The truth is they are only valid for that moment in time when they are made, not even three months.

Three months can be an eternity in a fast moving market (either up or down).

I don't think it is fair to denigrate appraisers based on who hired them. If they do their job properly it shouldn't matter.
1:55pm • #1
297,138 Points 19 Featured Posts Localism Sponsor Outside Blog

Bill Roberts  Yes, this is a picture of the pool of the home I showed you - this was taken from the deck off of the master suite.

You are right, the only truly effective date is the date it was prepared, but they are generally acceptable for use within 3 months without much of a problem.

I don't believe I am "denigrate appraiser" based on who hired them, but if you have your own appraiser then you know exactly how he operates and he knows exactly where you want your emphasis.

It is no secret that an appraisal for a re-fi will come in different than a purchase.  It is also no secret that if you hire 10 appraisers, you will receive 10 different values unless the home is so cookie-cutter with many very similiar homes in a very close proximity.

Now Have a Blessed Day,

by John Occhi, Hemet REALTOR®  
Mission Grove Realty  
Preforeclosure Specialist
2:11pm • #2
738,077 Points 231 Featured Posts Outside Blog Attended Rain Camp Called Shot Master

John... you hit the nail on the head, make your offer subject to an appraisal. In most cases in regards to agreements of sale, this is usually the case. If it appraises for less, then it's up to both sides coming to an agreement. If one is not reached, the buyer can walk.

jeff belonger

4:20pm • #3
297,138 Points 19 Featured Posts Localism Sponsor Outside Blog

Jeff Belonger Thanks Jeff.  There is a reason there are contingencies included in the standard language of a sales contract.

Now Have a Blessed Day,

by John Occhi, Hemet REALTOR®  
Mission Grove Realty  
Preforeclosure Specialist
6:27pm • #4
AUG
13
2007
2 Featured Posts

John - Ya got me . . .I bit on the "tickler" title of your blog post!  

I have mixed emotions on the content.  The valid concepts are so intertwined with with the invalid ones that is becomes a bit misleading.  Let me make an attempt to unravel some of them:

  • Market value varies depending on who hires them: All appraisals must identify the "Intended User" and the "Intended Use".  This is a critical component to the appraisal process.  Often the combination of those two will dictate the "type of value" the client is requesting: Listing price (FSBO), Current Market Value, Retrospective Value (estate), Anticipated Sales Price (ERC-Relocation), REO (As-Is & As Complete); New Construction (Plans & Specs).  As the "Appraisal Problem" varies, so will the value.
  • Differnent Appraisers = Different Values: Appraisals are by nature and definition: "Opinions of value".  Just like 10 agents might have 10 different "Listing Prices".   The KEY issue is that the values are clustered or grouped around a reasonable and supportable value.
  • Appraised Values are good for 6 months: As Bill Roberts points out above, how long an appraised value is valid depends greatly on the market.   Your post (and my appraiser friends in your area) would in dictate that values are declining . . . some at  the same pace that they were rising a year or so back?  If that's the case, it's critical that the client understand that and request an "anticipated" (future value estimate) value and not just the typical "current" market value.
  • Dealing with the appraiser of your choice: In a purchase situation, where a lender is involved, one has to understand that the BANK will ultimately order an appraisal and that THEY will decide who they use.  In that case the Intended User is the lender and the Intended Use is to assess the collateral and risk.   The BEST time for a buyer to hire their own appraiser is BEFORE they make an offer!!

http://activerain.com/blogs/homeappraiser 

Our_appraisal_logo_sm_blog_2 Author: Brian J. Davis, RAA - Brian Davis & Associates - Brian has over 23 years of appraisal experience in Central, IL and hosts the Appraisal Scoopblog and the WinTOTAL Users Group an email forum for appraisers.
7:37am • #5
297,138 Points 19 Featured Posts Localism Sponsor Outside Blog

 Brian Davis & Associates - First let me thank you for stopping in and offering your professional interpretation of how an appraiser works in each type of transaction.

Perhaps I was not as clear as you were (my writing skills have never been direct and to the point - I am much more conversational when I write - a flaw, but heck, it's me and I am definitely flawed.).

The entire purpose of this article is for the investor (or homeowner) to not rely on the appraisal of others when analyzing a potential deal.  You are 100% correct that a appraisal should be ordered prior to the offer, if at all possible.  I know that the bank will use thier own guy, and that is fine.  At the same time it is perfectly OK for you to hire your own appraiser.  My suggestion is to find one that you can work with on a regular basis that you know you can rely on as being consistent.

Thanks again Brian,

Now Have a Blessed Day,

by John Occhi, Hemet REALTOR®  
Mission Grove Realty  
Preforeclosure Specialist
9:34am • #6

The appraiser may be doing their job correctly, but in this market, values do not always concur with a written appraisal.

I trust to my own comps, my own evaluation and my gut feeling before relaying on an appraiser opinion.

www.CharlesParrish.com
10:39am • #7
297,138 Points 19 Featured Posts Localism Sponsor Outside Blog

Charles Parrish - And I agree as a professional with access to the tools you and I have access to - no need to go to a 3rd party to help access the value of a deal.  The article is not written so much for the Real Estate professional as it is for the investor or even better yet, the wanna-be investor - and yes they need to rely on a qualified 3rd party.

Now Have a Blessed Day,

by John Occhi, Hemet REALTOR®  
Mission Grove Realty  
Preforeclosure Specialist
10:46am • #8
JAN
28
2008
  I am a newbie and I think this is great information.  This validates the need of having one more person on my "Team".
1:42pm • #9


What does the graphic say?
Leave a response…

(optional)
Spam Prevention:
 
3-4%20headshot%20-%20040112 Rainmaker_large

John Occhi, ePRO, Temecula - Murrieta CA Real Estate, 951-443-6259

Murrieta, CA

More about me…

Retaja Group, Inc.

Address: Murrieta, CA, 92563

Cell Phone: (951) 443-6259

Email Me

ePro,John Occhi,www.johnocchi.com,realtor      Five Star Logo,Certification,REO,Five Star Institute

John Occhi CA Realtor's Facebook profile

Temecula & Murrieta Valleys, CA, real estate news, views and information provided to our community and agents.

Protected by Copyscape plagiarism checker - duplicate content and unique article detection software.

Real Estate Blogs Directory - Directory of real estate blogs and blogs of industries affiliated with and serving the real estate industry.



Listings

Links

Archives

RSS 2.0 Feed for this blog