Linda sold her house and was very happy with the buyer’s offer.  It was higher than her neighbor received two months ago.  As the custom, the buyer’s lender ordered an appraisal.  Linda really did not know why she needed an appraisal since the buyer wanted to buy and she wanted to sell the property. 

However, the Bank wanted an appraiser to tell it the value of the property.  From an appraiser’s perspective, value expresses an economic concept.  Appraisals are never a fact, but always an opinion of the worth of a property at a given time in accordance with a specific value.  In appraisals there are always a number of different types of values such as market value, investment value, estate tax value, and so on.  The Bank was interested in market value since this was a residential purchase. 

The market value is the most probable price which a property should bring in a competitive and open market under conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably and assuming the price is not affected by undue stimulus. 

Some of the factors that would affect Linda’s appraisal would include location, condition,  demand and availability of financing, utilities, environmental regulations, state and local regulations, road frontage, and water frontage.  Linda’s property was unique as most properties are.  There is no other property exactly like it.  Linda’s property and one next to it may be affected by different outside stimuli making the values different for each of them. 

The buyer may be willing to pay extra cash for Linda’s property if it does not appraise.  But the lender is weighing the risk of making the loan to Linda’s buyer based on the appraisal, and the amount of cash the buyer is putting as a down payment.  The Bank wants to be sure that its shareholders are not at risk if the loan is granted in the current “down market” upon terms decided by the Bank’s loan committee and underwriters. 

If you have questions about this process, send me an e-mail.

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