This is another article from the New York Times this week, and it’s about commercial property appraisals. However, many of the problems discussed are also common to residential appraisal procedures around the country. Generally, studies are showing that there are wide variations in appraisals, but in the majority of cases properties are being over-valued.
While real estate agents in the residential real estate market are complaining that appraisals go the other way, killing deals with low valuations, this hasn’t been verified with hard numbers or statistical surveys. The fact is that appraisers aren’t being selected the way they used to be, causing quality variations. There is probably more of a correlation between commercial appraisal and appraising property intended for rental, especially multi-family units.
In general, the article stated that surveys found that 64% of 2076 properties examined were over-valued, appraised at more than the selling price. In extreme cases, 121 of these properties were appraised at double or more the sale price. 132 appraisals placed property values at less than 70% of the sale price. These are major variations, and a concern to the lenders who are lending based on these appraisals.
As far as residential and multi-family real estate investors, there’s nothing good about either a very high or very low appraisal on a property. Hopefully, the investor has gained experience and developed their ability to come up with their own reasonably accurate market value. However, if you’re trying to get a mortgage and the value comes in low, it makes you second-guess your methods and either adjust the deal or find another one. If the valuation is high, you don’t get a different deal with the lender, but maybe you’ll feel like you bought right.
The important thing to take away from this story is that appraisals have become less reliable, and your ability to negotiate the very best purchase price is more important in keeping deals on track.