There are benefits to getting having multiple real estate appraisals on your property or on property that you are considering as a purchase. Investors, lenders, and buyers are all very interested in the value of a property. In addition, getting more than one appraisal can have a positive impact on the amount of property taxes you pay if the appraisals come back significantly lower than the assessed value.
What is a real estate appraisal?
A real estate appraisal is a statement of your property’s value. Your property is compared to others in the same area that have recently sold. For residential real estate the size, age, condition of the home, upgrades like granite counter tops or tumbled marble tile, year built and size and usability of the lot are all taken into consideration. For commercial real estate the location, building size, condition of building, age of building, construction materials, and lot size are all considered. Then they are compared to similar properties that have recently sold, usually within 3 miles of your location. A monetary value is then assessed to the property.
When do you need a real estate appraisal and why should you have more than one?
A real estate appraisal is required anytime you are looking to buy, sell or borrow money against the property. Prospective buyers will want to know what the property is worth in comparison to the selling price. Lenders will want to be sure that the money they lend will not exceed the property’s value. Sellers will want to be sure that they are pricing their property at a price that will sell. Another reason to have a real estate appraisal done is when you do not agree with the municipality’s tax value of the property. You may want to have more than one appraisal done to be sure that the first one is accurate, like a second opinion. Another reason is to show that the selling price is within reason and not too high or too low.
10 reasons why more than one real estate appraisal may be necessary.
First, you may want to challenge a recent property tax assessment. This is especially true in areas where real estate values have plummeted recently but the assessed value is not reflecting that downward trend. Having two separate real estate appraisals will enable you to have a better chance of getting reassessed to a more reasonable tax value. This can save you thousands of dollars in some areas. It is well worth the expense if the tax value is more that $20,000.00 more than the property is worth.
A second reason for multiple real estate appraisals is when you plan on purchasing a property with investors. Investors want to be sure that they will receive a profit on their investments. Having multiple real estate appraisals on the property will ensure them that you have done your homework and that the property is actually a good value.
Reason number three is that lenders will have their own appraisal done. Sometimes they will lowball the appraisal and other times they may over inflate the value depending on their motives. Reputable lenders do not participate in such practices. Having multiple appraisals will let you know if the lenders appraisers are playing games. If this is the case, get a different lending company.
A fourth benefit to getting multiple real estate appraisals is when you are looking to ask a lender to remove PMI if the lender feels that the property does not have at least an 80% mortgage to value ratio. This means that you should have 20% or more equity in the property and owe 80% or less of the property’s value. In areas that have not seen a dramatic decrease in property values like North Carolina, this is necessary. Your bank may feel that you have not met that ratio. Multiple real estate appraisals will show that you have met or surpassed that ratio. When that happens, PMI or private mortgage insurance is no longer required. This can save you hundreds or even thousands of dollars a year depending on how large your mortgage is.
Benefit number five is when you are looking to sell the property. As a common sense measure, do not let the real estate agent refer you to an appraiser. Use a few of your own to be sure that they are working for you and no one else. An accurate appraisal will put you as the seller in a position of power. Having multiple real estate appraisals will prevent pushy buyers from badgering you into a selling price that is too low. As a seller, you need protection too.
The sixth benefit of having multiple appraisals is to protect the buyer. Sellers can become emotionally attached to their property. When this is the case they may be unwilling to accept a reasonable offer. Having accurate multiple appraisals will protect you as the buyer from paying too much.
Commercial properties are another area where multiple real estate appraisals may be necessary. If you require financing in order to purchase a commercial property, multiple appraisals may be necessary in order to acquire all of the financing you need. Many times a commercial property will have more than one lender involved. There may be banks, investors, angel investors, silent partners and others who will have a financial interest in the property. The eighth benefit that multiple appraisals is that it will save you time and money in the long.
Benefit number nine is when the real estate is an apartment that has chosen to go condo or co-op. Multiple appraisals will be needed in order to determine the market value of each unit and to determine if the project is feasible at all. In this case there will be appraisals on each individual unit and the property as a whole. Only then can an accurate assessment be made as to whether or not the project should proceed.
Finally, benefit number 10 is for new construction. The developer and the tax man want the property valued as highly as possible so that they can maximize their profits. The buyer will want to be sure that the property is not over valued and that they are getting a good deal. Multiple real estate appraisals are needed by all parties in this case to ensure that everyone gets a fair deal.
Overall, there are many benefits of multiple real estate appraisals. Rarely should you require more than three. After that there is no added benefit and the costs will outweigh any potential gains. Multiple real estate appraisals benefit everyone by protecting buyers, sellers, investors, lenders, tax payers, and anyone else involved in real estate transactions.