Learn A Real Estate Lesson From A NYC Diamond Merchant

By
Real Estate Agent with Joe Manausa Real Estate 8508880888
https://activerain.com/droplet/4JGS

If there is one practice that confounds both homebuyers and sellers alike it's the fact that the majority of real estate transactions close at the mercy of an appraisal conducted for a purpose that most consumers do not consider.

Understanding these differences will save you money when it comes to buying or selling a home, and it will help you appreciate the need and value of a real estate appraisal (even though it might not be necessarily telling you what the house is worth in today's real estate market).

What Is A Real Estate Appraisal?

An appraisal conducted by a professional, licensed real estate appraiser is an opinion of value based upon certain conditions and a specified purpose.

The purpose of the real estate appraisal is seldom to provide the house seller with its current value in today's housing market, so it is important for the reader to consider the purpose of the appraisal if relying on its valuation as part of a decision-making process.

When Appraisals Cause Confusion

The biggest confusion that I see surrounding real estate appraisals occurs after a homeowner orders an appraisal on his home.

This process of determining the home's value is very different than the process a buyer's bank will use once a contract has been attained, from the selection of the specific appraiser down to the rules and obligations the appraiser will follow, the process and the appraiser's liability are simply not the same. Thus, most appraisals that I have seen performed for and requested by the owner of the property are valued higher than those performed for the purchase of the house by a buyer.

For years I felt like this was a bunch of hooey, that the industry was corrupt in saying that a home's value was different depending upon the reason for the valuation.

But then I got engaged. 

Real Estate Appraisal Versus Market ValueIn the mid 1990s, my (then) fiance Michelle and I made a trip to New York City in order to both visit the city as well as purchase an engagement ring in the Diamond District. I figured the amount of money we could save by going there and buying direct would more-than offset the cost of the trip.

Before the trip, I was schooled by my grandfather (who had become active in the diamond business during the later-years of his life). I prepared myself for evaluating cut, clarity, color and carat weight, and I departed Tallahassee feeling comfortable with what I should be able to acquire within my budget.

One full day of shopping on 47th Street in New York City was all I needed. Michelle and I chose a stone and the merchant urged us to "go upstairs" and have it "appraised" for insurance purposes. So up I went to an appraisal office, and this is what the appraiser reported to me after viewing the diamond (numbers changed to protect the innocent).

Joe Manausa real estate quotes   You have purchased a beautiful stone. I would say it has a value of $10,000, but I would ensure it for $18,000.

Huh? It's worth $10,000, but he gave me an appraisal saying it was worth $18,000. This certainly smelled fishy.

I asked him to explain to me how he could give me an appraisal with a value higher than what I had just paid 30 minutes prior (I know I'm a shrewd negotiator, but ...).

His explanation made good sense to me, and it also gave me a new perspective for the differing purposes of real estate appraisals.

He explained that the diamond could be purchased (or a very similar one could be purchased) for $10,000 right now on 47th Street in NYC, but I should ensure it for an amount that would allow me to replace it (should it be lost or stolen) without me having to come back to New York.

In essence, he was giving consideration to replacement cost and convenience in his appraisal, he was not telling me that I could go out and sell it for $18,000.

Similar considerations are made during real estate appraisals, and they are done so based upon data that is often 9 months old (or even older).

Other House Valuation Considerations

There are now automated tools on the internet that provide valuations for homes, and unlike most real estate agents, I encourage you to look at these when you are surfing and house shopping online.

They offer a decent comparison shopping insight that most consumers need when they are getting started. Of course, I would not encourage you to make an offer to buy or sell based upon an online house valuation tool, as these are not going to be accurate enough to get it "just right."  

Today's Market Value Of A House

The real estate appraisal that you are seeking when selling a house or buying a house can only be performed by a real estate agent who is actively working in the housing market and who has been hired by you to help them for that purpose.

Remember, 90% of real estate agents are part-time and/or rarely active, so you really need to take the time to interview agents for the job of helping you with your real estate transaction. Ask them to demonstrate their market prowess before you hire them to help you, as this is the one skill that all others work off of when it comes to putting money in your pocket.

It's not enough to ask them to show you the value of a house or area, you need to be able to check them out online and see that they are really active in the current market. There are many cheap "market analysis" tools that real estate agents can use to look as if they are competent, but see what others are saying about them to ensure that they are the right fit for you.

Of course, you can check out any one of the thousands of housing reports on the Tallahassee Real Estate website any time you like, here's a few hundred to get you started :).

If you would like to know the value of a specific property, simply drop me a note and we'll schedule a time to get that to you pronto!

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Morris Real Estate Marketing Group 10/02/2015 02:00 AM
  2. Winston Heverly 12/12/2015 10:55 PM
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Rainer
112,617
Vera Gonzalez
RE/MAX Suburban, Inc. - Sterling Heights, MI
Gonzo For Real Estate

Pretty awesome way to look at it. Love the pic by the way. Excellent blog.

Sep 29, 2015 11:47 PM #1
Rainmaker
1,514,027
Gary L. Waters Broker Associate, Bucci Realty
Bucci Realty, Inc. - Melbourne, FL
Fifteen Years Experience in Brevard County

Interesting read.  I never looked at the appraisal as explained by the diamond appraiser but understand.  With appraisals it all comes down to its purpose.  Well done!

Sep 29, 2015 11:54 PM #2
Rainmaker
1,162,133
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Thank you Vera Gonzalez and you are exactly right Gary L. Waters, Broker Owner, Waters Realty of Brevard, LLC 

Sep 29, 2015 11:58 PM #3
Rainmaker
996,624
Kevin J. May
Florida Supreme Realty - Hobe Sound, FL
Serving the Treasure & Paradise Coasts of Florida

A beautiful yet brief synopsis of the vagary of residential real estate appraisals. I know there's a 10x eye loupe in your pocket Joe!

Sep 30, 2015 12:13 AM #4
Rainmaker
1,162,133
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

I'm getting older Kevin J. May ... had to switch to a 25x

Sep 30, 2015 12:20 AM #5
Ambassador
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Anna Banana Kruchten CRB, CRS 602-380-4886
Phoenix Property Shoppe - Phoenix, AZ
Arizona's Top Banana!

Joe interesting analogy!  One thing I'm wondering about - 90% of agents are part time? I think that number is lower in my area but  it's hard to calculate it. Personally if I were a home seller I'd want an agent who is very actively working and who really understood the market. Pricing a home (or giving it a value) is extremly important when listing. Getting it right upfront is the key. I see  listings priced way too high every day. That doesn't help the seller with a 'false' appraisal.

Sep 30, 2015 01:02 AM #6
Rainmaker
1,162,133
Joe Manausa
Joe Manausa Real Estate - Tallahassee, FL
Tallahassee Real Estate

Agreed Anna Banana Kruchten about getting it right up front.

On the issue of part time ... if you were an employer paying people to work "full time," ... what percent of real estate agents would you terminate because they show up late (or seldom at all), leave early, take mutliple days off ... etc.? It's the reason most get in the business, the "freedom" to work when they choose. Most choose to not work and the statistics bear it out. The average transaction takes 50 "man hours" from start through closing, yet the average agent (that sells something) in the US only does 5.x transactions per year. If they were forced to do billable hours, that would be less than 300 hours per year, on average. That's 50 hours per month or 12 per week ... not full time. And that is just for the agents that actually do sell something.

Sep 30, 2015 02:32 AM #7
Rainmaker
3,059,282
Nina Hollander
Coldwell Banker Residential Brokerage - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

Great analogy, Joe. I particularly liked it because our family jeweler is on 47th street in the diamond district in NYC and has hand made much of my jewelry including my engagement ring. He always appraises for replacement value.

Sep 30, 2015 07:48 AM #8
Rainer
286,848
Thomas McCombs
Century 21 HomeStar - Akron, OH

Are you saying that there may be a difference between the replacement value and the purchase price for a parcel of real estate in the same way that this difference may exist for a diamond?

I too, have had trouble understanding why appraisals vary depending on the reason for the appraisal. It seems to me that, at least in theory, value should be the same regardless of the reason for it.

I am sure your thinking on this is good; I just could not quite follow it. I will give it some more thought.

 

Sep 30, 2015 11:33 AM #9
Ambassador
4,299,501
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Joe Manausa it is very interesting to compare Real Estate and Diamond appraisals!

Yes, future replacement value can be much higher than what the current value is.

The lender's appraisers are still going to focus on current value...lol!

Sep 30, 2015 01:29 PM #10
Rainmaker
870,553
Elyse Berman, PA
Best Connections Realty, Inc. - Boca Raton, FL
Boca Raton FL (561) 716-7824 CRS, ABR, GRI,ePR

Joe Manausa Interesting analogy of appraisals.  I am famiiar with NYC diamond district having been raised in NY.  I find appraisals can vary greatly by whomever performs them.  I've seen three inspectors offer different appraisals on the same home.

Sep 30, 2015 07:09 PM #11
Rainmaker
2,446,391
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

I took a moment to reflect on how important it is to do dillgence in Real Estate

Oct 01, 2015 12:05 AM #12
Rainer
19,766
Easy Outdesk Inc.,
easyoutdesk - Toronto, ON
Virtual Assistance

Joe - wonderful message, you have put it in the right way!!

Oct 01, 2015 03:13 AM #13
Rainer
145,673
Theresa Akin
CORPUS CHRISTI REALTY GROUP - Corpus Christi, TX

Great post.

Oct 01, 2015 05:49 AM #14
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

As an old insurance adjuster we saw inflated appraisals all the time.  You need more than a dollar amount on the appraisal.  You need a description of the diamond, cut, clarity, color, size, and most important a map of the diamond and the flaws in it (they all have them).   Then we would go to our wholesale sources for a replacement cost.  A little off point, but it made me think of those days.  

Oct 06, 2015 05:51 AM #15
Rainmaker
977,560
Jan Green
Value Added Service, 602-620-2699 - Scottsdale, AZ
HomeSmart Elite Group, REALTOR®, EcoBroker, GREEN

Appraisals are risked based assessments of value in real estate, a bit different han a tangible item like an engagement ring. Nevertheless, it's important to understand appraisals on either side of the coin!

Oct 06, 2015 01:56 PM #16
Rainmaker
703,389
Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

Hi Joe Manausa Somehow I missed this when you posted it. Sorry.

But my question is "were you trying to "buy" that girl with such an expensive ring?"

As for appraisals, you left out the most important reason for the value expressed, KEEP THE APPRAISER OUT OF JAIL.

Bill Roberts

Dec 13, 2015 01:55 AM #17
Rainmaker
2,394,939
Evelyn Johnston
Friends & Neighbors Real Estate - Elkhart, IN
The People You Know, Like and Trust!

So glad to see this featured, it is an outstanding post and well written!

Dec 13, 2015 08:02 AM #18
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