What is the purpose of an Appraisal?
Does it seems odd that the appraised value just so happens to be "exactly" the amount that you offered for a home? I used to think the same thing but now that I have come to learn more about the appraisal process it actually makes perfect sense to me.
What is the purpose of the appraisal? It is to assure the bank that the loan they are giving you is protected by an asset of adequate value. The appraiser's job is to try to determine "market value" based on comparable sales in the nearby neighborhood. What is "market value?" It is the price that an un-distressed buyer would be willing to pay to an un-distressed seller. The fact that you have a contract with the Seller at a certain purchase price is not insignificant in determining value- you are an un-distressed Buyer that has agreed to pay x dollars to an un-distressed Seller. As long as the appraiser can find comparable sales to support the x dollar price, then who is the appraiser to be better at determining value than you and the Seller? So, it could be that the appraiser might have been able to support a price that is higher than x dollars but since you and the seller agreed to x dollars then x dollars it is. If you had offered more, then maybe the appraised value would have been more. At some point, however, the comparable sales cannot support the purchase price in your offer. For example, if you had offered $850k and the max the comps can support is $775k, then the appraised value would come back at $775k. Again, the appraiser is making sure that the bank does not lend more than 80% of the maximum value that the comps can support.
Does it seems odd that the appraised value just so happens to be "exactly" the amount that you offered for a home? I used to think the same thing but now that I have come to learn more about the appraisal process it actually makes perfect sense to me.
What is the purpose of the appraisal? It is to assure the bank that the loan they are giving you is protected by an asset of adequate value. The appraiser's job is to try to determine "market value" based on comparable sales in the nearby neighborhood. What is "market value?" It is the price that an un-distressed buyer would be willing to pay to an un-distressed seller. The fact that you have a contract with the Seller at a certain purchase price is not insignificant in determining value- you are an un-distressed Buyer that has agreed to pay x dollars to an un-distressed Seller. As long as the appraiser can find comparable sales to support the x dollar price, then who is the appraiser to be better at determining value than you and the Seller? So, it could be that the appraiser might have been able to support a price that is higher than x dollars but since you and the seller agreed to x dollars then x dollars it is. If you had offered more, then maybe the appraised value would have been more. At some point, however, the comparable sales cannot support the purchase price in your offer. For example, if you had offered $850k and the max the comps can support is $775k, then the appraised value would come back at $775k. Again, the appraiser is making sure that the bank does not lend more than 80% of the maximum value that the comps can support.
