Investing in Real Estate, 7th Edition

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APPRAISAL: INS AND OUTS OF MARKET VALUE

Market value remains a centrally important metric (measure) to real estate investors, mortgage lenders, and homebuyers. Only the foolish would buy, sell, or loan against a property without knowledge of its market value. Nevertheless, hundreds of bank failures and millions of foreclosures has laid bare the idea that this popularly relied upon figure should serve as the only figure that matters.

Never again should anyone believe the once-entrenched view, “Buy for less than market value, you've scored a good deal. Pay more than market value, you've overpaid.”

Never again should anyone rely upon appraisers (without question) to provide accurate, disinterested estimates of market value. Although always known among real estate insiders, the market value estimates of appraisers are not only subject to unintentional errors of fact, interpretation, or both, in many instances, appraisers manipulate their numbers to deliver whatever value estimate makes a deal work (at least, that is, appear to work—in the short run.)

So, this chapter will help you in two ways:

1. You will understand how to review and critique a professionally prepared market value appraisal; and, correspondingly, you will wisely decide how much confidence you should place in the appraiser's estimate of value.
2. You will see that for purposes of investment, even an accurately prepared market value appraisal fails to provide a figure that offers a fair or reasonable price to pay. For that ...