HOMES MARKET VALUE
In the real world, very few individuals order appraisal reports to establish
an offering price or to substantiate a purchase price. At the point that an
offer to purchase (in a typical residential transaction) is made, the price
has been set by other parties, not the purchaser. The price has been determined
by the seller, who wishes to obtain the highest price possible, or the agent,
who receives a percentage of the price as compensation and often represents
the seller in the transaction.
The real estate agent will typically perform a comparative market analysis
(CMA). The appraisal laws in most states allow real estate agents to perform
CMAs without an appraiser's license or certification. A CMA is a necessary part
of the agent's preparation for a listing and consists of examining sales of
properties in the area to arrive at a listing price. The reliability of the
CMA depends upon the agent's experience and the characteristics of the property.
The agent will suggest a selling price to the seller based upon the analysis.
However, neither the seller nor the agent are bound by the results of the analysis,
and the agent is not required to follow any formal procedure in completing the
CMA. If a seller wishes to list the property at a price higher than the price
suggested by the agent, then the agent may be forced to accept the listing at
that price or risk losing a commission.
Purchasers believe that they are getting a good deal if they make an offer
lower than the listed price. But how far above the market value was the property
listed? 10%, 15%, maybe even 20% above the fair market value? A negotiated price
of 10% less than the listed price on a property that was listed at 20% above
its value is not a bargain. The agent cannot tell the purchaser that the offered
price is higher than the value, or even higher than their own CMA. In most states,
they must submit the offer to the seller.
The seller of a property may want to order an appraisal before listing the
property. Of course, the cost of the appraisal is always a deterrent, especially
if the seller knows that a buyer will pay for it when applying for a loan. But
the appraisal is often justified. The seller could lose a sale if the property
appraised for less than the sale price when appraised by the appraiser.