When I was about 9 years old, my grandfather taught me a lesson about what something…anything, is worth. I had a Ricky Henderson rookie baseball card and I rather proudly showed him the card and declared, “this is worth $45!” He asked me how I knew that, to which I told him that the Beckett Baseball Card Guide said so. He gave me a look and immediately changed our plans for the afternoon; we were going to find out what it was really worth. …of course I said…”Pop-pop, I told you, it’s worth 45 dollars, it says so right here."
We went to the local baseball card store, where he told me to show the man behind the counter my card. I did, and he told me to ask how much the man would buy it for. Well, as some of you can imagine, I was not offered the $45 that Becket Baseball Card Guide said it was worth. Rather, I was offered somewhere around $30, to be honest I don’t remember exactly how much he offered. What I do remember is telling my popup that the man was a crook! …so he took to me to another card store... At that card store I was offered even less! When I said I’d had enough and didn’t want to sell the card anyway, my grandfather offered me a sentence that is probably not new to you all, but was wisdom that I still carry with me to this day; something is only worth what someone is willing to pay for it.
Cute story right? …well, like my grandfather, there was a purpose in taking you through that journey. I talked to a realtor recently who had a seller that both wanted to sell soon, the property had already been on the market for 6 months, and they wanted to get as much as possible. Sound familiar? I’m sure it wont shock you to hear that “as much as possible” in the realtor’s head, was a lower number than what the seller had in their head.
We eventually started talking about the value of ordering an appraisal on the property. In today’s market, an appraisal can be very important to order early in the game, here’s a few reasons why:
- Sellers really don’t know what their house is worth. Now I know that in my story above, Becket Baseball Guide essentially is the same as an appraisal. But I can tell you that a new guide is always better than an old one. Most sellers that are having trouble “finding someone to pay what it is worth” really are just looking at an old value guide. An appraisal done upfront can immediately set the expectations correctly. It doesn’t mean that you and the seller have to put it on the market for exactly what the appraiser says, but it does provide a base of understanding to begin finding what someone is willing to pay.
- Appraisals provide valuable information about the Seller’s property. The 15-25 pages of an appraisal report, when done correctly, will leave your sellers feeling informed and better able to make decisions when offers come. The last thing anyone wants to see happen to a seller in today’s market is to have an offer get rejected that 2 months later the seller is dying for! In all markets, good/bad…real estate/baseball cards, informed participants have an edge over the uninformed.
- Appraisals can actually affect value! Put simply, if you are marketing to people other than cash buyers, then the mortgage will be based on the LOWER of the purchase price or the appraised value. What that means is if you have a 5% down buyer on a $100,000 house. The buyer is expecting to put $5,000 down. If the appraisal comes in at $90,000, then to keep the same loan terms, the customer will need to put 5% of the $90,000 ($4,500) AND the difference ($10,000). Of course there are other options…lower the sales price, take a different loan, or the customer interprets the situation as overpaying for the house and walks.
Having an appraisal done early removes so many of the small things that can go wrong, it also educates the sellers to make good choices that will ultimately lead to a better experience. One last thing…if you ask us to order the appraisal for you, then any buyer can use that appraisal and not have to pay for it, one less thing for the buyer to worry about and one more thing that you protect yourself from going wrong.
“People can’t be perfect but loan files can, if you want proof that a perfect loan file exists, just look at the ones ready to close. Nothing is closing till its perfect right now, so don’t waste time doing anything but getting the file in that condition”
--Keith
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