Definition
Appraisal
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An appraisal refers to the determination of a property’s value by a qualified appraiser. The result is what is known as an appraised value.
It must be noted that an appraised value has nothing to do with market value or a seller’s asking price.
It is just an opinion of an appraiser of what the estimated property value is.
Even though transaction prices can occur above or below the appraised value, banks often based a mortgage’s loan to value on appraised value when the transaction price is equal or above it. And at the transaction price when it is below the appraised value.
So it still plays an important role in in the home buying process.
Very often, appraisers appraise properties based on the selling price. This practice is especially predominant in the new condo sales market.
Because new homes that have yet to be built have no physical presence, appraisers are only left with data and intangible factors to estimate the value of a property.
Thus, they almost always value a new undeveloped condominium unit at it’s transaction price. This is why this market can be dangerous as developers can grossly overprice their units and appraisers value them the same way.
It’s as if developers are playing the role of surveyors and valuers by valuing their units at precisely the same price as its market value. Appraisers are there just to rubber stamp it.
The truth is that if appraisers are independently prudent and appraise condo apartment units below the listed selling prices set by developers, the whole new launch market for private properties would be turned upside down.
Because appraisers are professionals, they do charge a fee.
This fee is usually borne by the borrower. If a lender is waiving it, it only means that they have likely accounted for it in the interest rate on the loan or make up part of the closing costs.
One cannot expect banks to be charitable.
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