If you are buying a home cash, in the eyes of a home seller you are looked upon more favorably than a buyer who needs a mortgage. It’s one less contingency on a sales contract meaning one less reason your transaction might fail. That said buyers are well advised to do their due diligence when buying a home and that may include having your own appraisal. If you were applying for a mortgage your future lender would have one to make sure their loan is relatively safe based on how much a buyer is borrowing and how much a home is valued at.
Why Do Your Own Appraisal?
Should you have an appraisal for any cash real estate purchase? A year or so ago I would have said yes. In a declining market which we have been witnessing for the last 5 or so years, properties were declining in value and it would have been very easy to overpay for a house. Even though our market is recovering there are still times when having your own appraisal is a very astute decision. Here in Barrington there are many times we as Realtors have a hard time finding enough comparable sales to give you a solid decision on pricing. It’s also important to note we can generally you give you a range but never a fixed number. An appraiser will give you a fixed number.
Consider your own appraisal for:
- Homes that do not conform to the neighborhood.
- Much smaller than others in neighborhood.
- Much larger than others in neighborhood.
- Much younger or older than others in neighborhood.
- Smaller or larger lot size than others.
- Homes that are unique in styling or build materials.
- No available sales nearby or few that are comparable.
- When there are so many differences in the comparables we find it makes it difficult to come to a reasoned decision on price.
Appraisals Are Subjective.
It doesn’t matter where you are thinking of buying a house, Barrington, Inverness, Palatine or any other suburb in Chicagoland, if you order and pay for 3 appraisal companies, I can more or less guarantee you will get three different appraisals and 3 end results.
Before I continue please know that I am not a licensed appraiser and can not nor will not do what appraisers do when they complete their forms. Appraisers have different training than Realtors to get their licenses.
Recently in a cash transaction, the property to be purchased was considerably different to the others in the neighborhood. In other words it did not conform. Some of the differences were lot size, house size, quality of construction, and level of maintenance both inside and out. There were no ideal comparable sales, so the buyers as recommended decided to pay for their own appraisal.
Little did we know, the seller decided to do the same, for the very same reason. The result was two completely different set of comparable sales were used. Both used three sales and not one of them was the same. That’s how they become subjective.
As a Realtor selling in the market I did my own CMA. That’s a comparative market analysis. I also try to find comparable sales and as best I can make adjustments for the differences in the properties. I don’t have the knowledge the appraisers do but a few things really stood out as problems. Here are some of things I as a local Barrington Realtor had issues with.
- I found a sale which I believed to be a much better comparable sale than any of the other 6 used.
- I found very little I could object to with one of the appraisals.
- I found more objections with the second appraisal.
One of the biggest differences and objections I found was school district. As Realtors we are always asked which schools are better but this can be as subjective as appraisals. Every parent wants different things in schools, be it scores, or sports, or advanced courses, awards or reputation. So our opinion should never be made. However here in Barrington I am always asked, make sure the house we buy is in Barrington School District. The other school district is good but no-one to date has ever asked me to make sure the house is in that district. It’s fair to say Barrington School District among others is sought after.
So in two appraisals I would only want an appraiser to compare apples with apples in other words the same school district. How on earth am I supposed to adjust for that, I have no idea if I should at all, yet my gut tells me it was affecting the number.
Is The Appraised Value The Amount A Home Should Sell For?
The short answer to that question is No. A property can be appraised for an amount but sell for more or less. Simply a property will sell for what a buyer is willing to pay. The two appraisals have different numbers. Who should buyer and seller believe? I guess the answer is they will each believe the one they paid for, especially if it favors them.
To prove this point in our recent cash sale the price on the contract was amended. We were no longer at the original asking price, we did not close at the price on either of the appraisals. The buyer was willing to pay an amount and the seller agreed to accept.
We hope this helps you understand whether or not to have an appraisal for your cash purchase and what to expect from an appraisal.