Lake Geneva Appraisals

Lake Geneva Appraisals

Lake Geneva Appraisals

You write an offer on a property. You negotiate the offer. You convince the seller to take your counter offer, or the seller convinces you to take his. Your offer was written in a standard fashion, with contingencies for inspections and a new survey and title work. You didn’t write in a financing contingency, because you didn’t really need one, but you did include an appraisal contingency. You know, just to make sure you weren’t over paying. You complete the first few steps of your contract, the inspections went okay. There are some issues, but houses are structures in some continual state of decay, so this is not unexpected. You receive the title and excepting the deed restriction from 1919 that allows the neighbor to observe every other Harvest Moon from your driveway, it’s fine. The last thing to be completed is the appraisal.  What’s taking so long?

The appraiser was out to view the property weeks ago, but the appraisal isn’t yet complete. More comps, she says, she needs more comps. But it’s a Lake Geneva property so comps don’t always exist, which means existing, imperfect comps must be manipulated and adjusted to fit the appraiser’s uniform criteria. Your property has 100′ of frontage, and the comparable on the street has 50′.   The appraiser doesn’t get to double the value of your home as a result. But the appraiser works and works and after a long wait the appraisal comes back. You’re nervous, wondering if you overpaid or secured a fantastic deal. Your contract price on those 100′ is $1,950,000. You open the appraisal and squint, to lesson either the blow to your fragile psyche or to prepare for a most boisterous celebration. The appraised value: $1,950,000.

You’re satisfied, but somewhat disheartened. You thought you had negotiated a better deal than that. You thought the appraisal would come in at $2,000,000, at the very least. But it didn’t and now you’re sad, but you’ll close anyway in spite of your disappointment. Appraisal letdown is real. Appraisal letdown is worse when it kills a deal, but all sorts of appraisal deficiencies are sad.  The problem is they shouldn’t be. And that’s because appraisals are essentially worthless in their ability to predict value. This makes people everywhere rather upset. But I have a $1,500,000 appraisal on my house that you think I should sell for just $1,400,000!!

The American consumer doesn’t understand the appraisal. It doesn’t understand what it really is, how it’s really formulated, and what it really means. The real estate transaction has put so much onus on the appraisal, obviously due to the lender requirements of justifying value for the dollars their about to lend. And in that is the actual truth of the appraisal. It doesn’t come up with a fair market value, it simply seeks to justify the value that it has already been given. An appraisal is about as subjective as a HuffPo editorial. It seeks not to inform, but to use the means as a way to justify the end.  The modern day appraisal is really no different than a rubber stamp of approval, and that’s exactly what it should be.

See, the marketing process of any given property is what actually sets the price. If a home is listed for $2MM and it receives three offers of $2MM within one day of being listed, we are all smart enough to know that the home was worth more than $2MM. If, however, a home is listed for $2.95MM and it doesn’t sell after the first year and then after subsequent price reductions it ultimately sells for $2.25MM, we can assume that the $2.25MM is a fair and accurate, market tested price for that home. When the appraiser comes along, her only job is to coerce that same number out of the comparable properties that have sold in recent months. There’s no fact finding to an appraisal process, no market forecasting. There is only the formulated justification of the price that the market already agreed to. Nothing more, nothing less.

Next time you’re waiting on an appraisal, do me a favor and stay calm. Don’t pin your hopes on it. If it comes in 10% over the price you’re paying, don’t be happy. And assuming your loan isn’t riding on the outcome, if the appraisal comes in at 10% below the price you’re paying, don’t be that upset. The appraisal isn’t there to tell you if you’re paying the right price. It’s there to justify the price you’re paying.

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