Continued from FAQ's page 1
Most probable price is the sale price that is most likely to occur or that is most typical. This price represents the central tendency of a data set of like or highly similar components, being not only the most likely mean and median but also the most likely mode of an assumed normal distribution. Another way of looking at this is: if the property in question were to sell a great many times, as of a specified date, most, or at least a plurality, of the sales would likely cluster at or near this price. However, as with any statistical distribution, some sales would also occur both above and below this amount.
I bought
my house for $100,000 two years ago. Shouldn’t it be worth at least $110,000 now?
Prices do not necessarily rise from one year to the
next. Sometimes, and more often than most people think, real estate prices can and do go down. During times when prices are rising,
they generally do not rise by steady amounts or compounded rates and can also vary from one locality to another and from one property
type to another. Real estate prices also do not necessarily rise or fall with consumer prices or the consumer price index.
Although
increases in the money supply by the federal government tend to increase all prices over the long haul, for the most part, prices
are the net result of the pushes and pulls of supply and demand. Hold supply constant and increase demand (or reduce supply and hold
demand constant) and prices are likely to increase. And vice versa.
See the next question for corollary thoughts.
The appraiser appraised
my property for less than I bought it for. How can this be?
Before I can answer this question, I must first assume that the appraiser
is both honest and good at what he does; that is, he did not falsify the appraised value. With this assumption in mind, three explanations
present themselves: (1) real estate prices in your neighborhood have trended down, (2) something happened to your property to cause
it to go down in value, and/or (3) you paid more than market when you bought it.
Prices for any commodity anywhere can change; they
can and do go both up sometimes and down sometimes.
Property owners, when they list or offer their property for sale, tend to ask more than market value, expecting to receive lower offers from potential buyers. When a sales agent, a lender, or other party whose income is dependent upon the closing of the deal is involved in the transaction, pressure on the appraiser to come up with a value estimate that makes the deal work can be intense. Sometimes some appraisers succumb to the pressure and pump up the value estimates.
Isn’t my property worth more simply because I own it?
As silly as this question sounds, I have found that it seems to represent a universal truth; in other words, people not only seem to value highly the things they like but also assume that all other people value just as highly the same things. If, for example, you live in an average home in a cold climate but install an outdoor swimming pool because you enjoy an invigorating dunk in cold weather, you should be prepared for the fact that your pool may not only contribute nothing to the total value of your property but also possibly reduce its value.
I paid for the appraisal, how come it’s not mine?
An appraiser’s
first and foremost duty is to his client and, because of confidentiality requirements, he cannot even talk about his work without
the client’s express permission.
In many lending situations, it is the borrower who pays for the appraisal, but the lender who orders it. As a result, the borrower feels he has a right to see and get a copy of the appraiser’s report. It behooves the borrower, at the beginning of the lending process, to insist on getting a copy of the report or to be named as the client or, at lease, as a co-client.
What is highest and best use?
The use or uses of a property, chosen from various possible uses, that generates the highest most probable
market price (that is, market value), as limited by various legal, physical, locational, and market considerations, such as: market
demand and supply, the property’s own characteristics, physical and economic feasibility, location, access, utilities, environmental
hazards, “grandfathered” rights, and pertinent legal restrictions. Thus, anything that can affect value can affect highest and best
use. Further, it is a market driven concept and does not take in to consideration non-economic subject property uses, such as: parks,
open space, public schools, libraries, athletic fields, etc., except as they may otherwise impact value.
Its focus is upon what the property can sell for in the marketplace, even if a non-economic use is very desirable. Its focus is upon what is realistic or most likely to occur; not some fanciful pie-in-the-sky notion.
I think that the average consumer tends to assume that all appraisers and all appraisals are about the same. I have had the opportunity to examine many professional appraisal reports over the years and I have found the vast majority to be sadly lacking in quality of workmanship, thoroughness, and reliability.