Appraisal to Establish Current Market Value
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In the real world, very few individuals order appraisal
reports to establish an offering price or to substantiate a purchase price. At
the point that an offer to purchase (in a typical residential transaction) is
made, the price has been set by other parties, not the purchaser. The price has
been determined by the seller, who wishes to obtain the highest price possible,
or the agent, who receives a percentage of the price as compensation and often
represents the seller in the transaction.
The real estate agent will
typically perform a comparative market analysis (CMA). The appraisal laws in
most states allow real estate agents to perform CMAs without an appraiser's
license or certification. A CMA is a necessary part of the agent's preparation
for a listing and consists of examining sales of properties in the area to
arrive at a listing price. The reliability of the CMA depends upon the agent's
experience and the characteristics of the property. The agent will suggest a
selling price to the seller based upon the analysis. However, neither the seller
nor the agent are bound by the results of the analysis, and the agent is not
required to follow any formal procedure in completing the CMA. If a seller
wishes to list the property at a price higher than the price suggested by the
agent, then the agent may be forced to accept the listing at that price or risk
losing a commission.
Purchasers believe that they are getting a good deal
if they make an offer lower than the listed price. But how far above the market
value was the property listed? 10%, 15%, maybe even 20% above the fair market
value? A negotiated price of 10% less than the listed price on a property that
was listed at 20% above its value is not a bargain. The agent cannot tell the
purchaser that the offered price is higher than the value, or even higher than
their own CMA. In most states, they must submit the offer to the
seller.
The seller of a property may want to order an appraisal before
listing the property. Of course, the cost of the appraisal is always a
deterrent, especially if the seller knows that a buyer will pay for it when
applying for a loan. But the appraisal is often justified. The seller could lose
a sale if the property appraised for less than the sale price when appraised by
the appraiser.
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