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Accurate property values are vital to mortgage brokers and real estate investors, who must make pivotal decisions based on the reported value of a house or land parcel. An appraisal that misses the mark and reports the value too high or too low, can have costly repercussions. Read on to learn why an accurate appraisal is so important.
Omer Reiner, Licensed Realtor, and President of FL Cash Home Buyers, LLC.
Slimmer Profit Margins
Incompetent asset appraisal can be one of the worst things to happen in a real estate business. Asset appraisal depends on three things:
- Income generated
- Fair market value
If this [appraisal] is done improperly in a real estate business, two things can happen:
- Real estate businesses could purchase properties for more than they are valued.
- They can sell the properties for lower than they are valued.
Real estate businesses have a profit margin of only 14.8%, meaning that real estate businesses cannot afford mistakes in appraisal if they expect to be profitable.
It is best to hire a good inspector and asset appraiser, so real estate companies can assess the value of these properties as accurately as possible.
Paul Corazza, Principal at Independent Property Group Gungahlin.
Property Sale Complications
Not using the right listing price for the property can result in too many offers, not enough offers, or no offers at all.
If the listing price is too high, your property may never sell, and it will be a waste of time. On the other end of the spectrum, if you list at a price that’s too low, buyers think they’re getting a steal and start trying to buy your home for less than what it’s worth.
In addition, the appraisal will directly affect the loan you get because it provides the value of your property. If this value is off, then the terms of the loan you get may not be good enough for you to make payments on time or could be more than what your property is worth.
Lastly, you may pay more in capital gains tax because the actual value of your property is higher than what you originally paid for it.
Cathryn Bailey, Founder at Bomisch.com.
Your Business Reputation Will Suffer
Any deviation between contracted appraisal and appraiser’s estimate of value is called appraisal mismatch or appraisal discrepancy. The difference must be investigated immediately, and appropriate measures must be taken to remedy the situation. If this does not happen, you will be liable for any loss, and your reputation will be affected.
Your real estate business reputation is everything. If your company is associated with incompetence and inaccuracy, it can affect not just you but everyone who works for the firm. It can affect future deals as well as existing ones. This is a quite serious matter, and proper education is a must.
The internet is a big place where you can learn a lot from other people’s mistakes without putting yourself at risk. Read up on appraisal topics such as comparable market analysis, cost approach, etc., to familiarize yourself with what you should know. This will save a lot of time and money in the long run and can potentially save your business.
Mitchell G. David
Mitchell G. David, Founder of Beach Life Ocean City.
Impact on Your Mortgage
Because most of the lenders or banks would provide you a property or home loan based on your appraisal estimation in the current market, an appraisal has a direct relation with the amount of mortgage you would be able to [take out]. So, when an incompetent asset appraisal arises, the lender might not give you enough money.
A poor appraisal takes place when your appraised value is lower than the sale, which is a feature of incompetent asset appraisal. Lenders’ organizations and banks go through the details and make their own decision on determining your qualification on loan. They use an independent evaluation of the present market value from your licensed appraiser. So, when they see an incompetent asset appraisal, they have no choice but to disqualify the loan eligibility.
Jake Hill, CEO of DebtHammer.
Poor Appraisals Hurt the Bottom Line
Incompetent asset appraisals will generate false figures. When these figures are wrong, they will incorrectly represent the value of your property/assets. This can hurt real estate businesses by misrepresenting properties as being less valuable than they are, which will allow people to purchase properties for less than their actual value – causing the company to lose money. It can hurt mortgage businesses by falsely allowing people to qualify for loans that they actually shouldn’t be able to qualify for.
Bob Scott, Founder of Sell Land.
Broken Deals and Lost Profits
Valuation of land is a complex process wherein several factors are considered and analyzed. Incompetent asset appraisal breaks deals and harms expected property profits. More often than not, it affects negotiations negatively. That’s why our company opts to buy land directly from the seller. No agents, inspectors, appraisers, or banks as middlemen who lengthen the process and add commission costs. We look at the property from all angles and integrate an in-depth review to come up with the most beneficial offer for both parties.