Beware of appraisals! They can mislead you and as a result it can cost you a lot of money in real estate! In this video, you’re going to discover the 3 most common reasons why appraisals are used and how they can be misleading.
Our team has reviewed thousands of appraisals and while some appraisers may get offended by what I am about to share, this is how it really works in the real world. People have often thought appraisals were the one thing you could rely on, but can you? Whether you're a homeowner planning to sell, a rehabber aiming to fix and flip for profit, or considering refinancing your home, this is for you! Here are the 3 most common reasons why appraisals are used and how they can be misleading.
Homeowners Looking to Sell
Are you a homeowner looking to sell your property right now or in the future? Do you often wonder what your home is worth? In some cases, homeowners will hire an appraiser to estimate the property's value. The issue with this is, the value is simply the appraiser's professional opinion, not necessarily what a willing buyer would pay. This is why, when a property is listed on the open market, it might not get the appraised value. This can lead to seller frustration and hesitation to lower the price, even if they don't receive any offers. Because in their mind, their property should be worth what the appraiser determined, right? Unfortunately, this is not always the case.
There can be factors that appraisers overlook in their evaluation process which will ultimately affect what a buyer may be willing to pay. In fact, we put together a video to help you identify some of those hidden factors that can significantly affect property value: 10 Hidden Factors that Can Destroy Property Value. So, sellers, don't be married to your appraisal report and understand this is simply an opinion of value, not the actual value.
Fixing and Flipping
You may be looking to fix and flip your next property. Well, determining what the ARV value of the property is critical when profiting from your next real estate deal. Be aware that hard money lenders often use their own appraisers to determine property value to protect their money. However, depending on the appraisal this can bring a false sense of confidence to the properties value, especially if the appraiser is overly generous in their assessment. This could lead to over-improvement of the property, reducing your profit margin or even resulting in no profit. Worse still, it could mean being unable to sell or refinance the property, potentially leading to foreclosure by the hard money lender.
That's why mastering the skill of accurately determining a property's potential selling price is vital in real estate. This expertise doesn't come overnight; it requires years of practice and real-world experience, and we leverage this experience to guide the students we mentor. Phil has created very informative videos that teach you how to correctly assess a property's value and predict the final sale price. These are two resources you should watch before you even think about doing your next real estate deal:
Determining Property Value the Right Way
Don't get caught relying on just the appraisal, you need to develop this skill set to protect yourself from a costly mistake in the future.
Refinancing Your Home
For those considering refinancing their home, be aware that an appraisal can significantly impact your plans. When you refinance, the bank will require an appraisal. The issue here is that the bank's current value of your home could exceed the price the market may pay later. Consequently, when it's time to sell, you might find yourself only breaking even or facing a potential loss due to the loan-to-value ratio. You may want to think twice about maxing out the refi-amount your bank is willing to lend based on a 3rd party appraisal.
Remember, the appraisal could be much higher than what a future buyer is willing to pay. The last thing you want is to be unable to sell your home due to an overly optimistic appraisal. Be mindful that you need to have a realistic understanding of your home's value to prevent overextending yourself if you decide to refinance.
Every Successful Real Estate Investor Has a Mentor
If you're looking for help to take your real estate investing to the next level, fill out an application for our Apprentice Program here: Freedom Mentor Apprentice Program.
If you have questions for us, text FREEDOM to 305-315-8030 or post a comment below.
Speak Your Mind