Most people know that appraisals need to be completed for lending purposes. But did you know there are a number of other reasons you should be contracting an appraiser to perform a professional valuation on your property?
1. When you are the seller of a FSBO (For Sale By Owner). My experience in completing appraisals for properties that have been sold without the professional expertise of a real estate professional is that the selling price is often lower than the value. Many people think that they are saving the expense of paying a commission to a broker and therefore have some wiggle room in deciding on a sale price. Based on my research of keeping the data on these types of transactions, at least 75% - 80% of the time, the seller would have had a higher net income even if they were to have paid the commission. If you plan on selling your home, you have two options- either contract a real estate agent to properly help you price and market the home or get an appraisal so that you can maximize your income from the sale.
2. When you are a cash buyer you definitely want to get an appraisal. In cases where a buyer is using financing, there is a built in fail safe because the lender is going to require an appraisal. If the appraisal determines that the value of the property is less than the agreed upon purchase price, this will impact the loan and often allow the parties to renegotiate in order to make the transaction work. If you are paying cash, you should choose an appraisal contingency that allows you the option to have an appraisal completed. This way you can be assured that what you are choosing to pay is based on the information about what the property is worth. In todays crazy market, many people are choosing to pay more just to get into a house, but with an appraisal it would be a willing choice based on being informed. If you would prefer to not pay more than the property is worth, then an appraisal contingency will allow you to either renegotiate or back out without penalty.
3. When you are the executor or executrix for an estate. Estate appraisals are necessary to be able to pay the appropriate level of estate taxes. Many times the probate attorney will need an appraisal in order to properly calculate the estate taxes. This information can also be helpful in determining if a family member is willing and able to purchase the property or if it is best to sell it on the open market.
4. Divorce litigation- Divorces are never easy and when there is shared real estate involved, typically an appraisal will be ordered by both parties as part of the overall process. These appraisals should not be considerably different as it should not matter which side the valuation is being performed for. In some cases, if there is a significant difference in the values, the court will order a third or make a ruling based on the testimony of the appraisers for the reports already completed. This value becomes important if you have ever heard the term “buy out”. The party that desires to stay in the home has to buy out the party that is no longer going to be in the home.
5. Consulting services are what you need if you are looking to remodel, subdivide or construct an new addition. If you are looking to make major renovations, subdivide a large parcel of property into smaller multiple parcels or construct an addition to your home, it is strongly advised to consult a real estate appraiser to help you in determining how to maximize the value versus the cost. Too often I’ve encountered many well intended owners who spend tens of thousands of dollars to make major renovations to their home or property without realizing that the return on their investment is minimal and no where near the investment they made. In the end, they are saddled with a large amount of debt and little return to show for it. A few firsthand examples I have seen is the $75,000 spent for a custom in ground pool, the $3,000,000+ custom home in an area that has median sale prices around $200,000 or the $100,000 renovation to a 150 year old barn with minimal contributory value. Consulting services can help you determine the best renovations to make resulting in the highest market value or it can help give you an insight into the highest potential for a subdivision or addition.
There are other possible reasons for needing an appraisals, such as tax appeals, bankruptcy or eminent domain, but these are some of the more common ones. In the near future, I’d like to expound on these in even more detail. In the meantime, if you need an appraisal for any purpose, please trust the Gold Level Real Estate Appraisal Office from the Best of Westmoreland County 2022 contest. We would be more than happy to help you with all of your real estate valuation needs.