The Value of Value: How Determining the Worth of Real Estate is Tricky

March 1st, 2013 by Tatyana Levin

The general point of real estate investment is to make money.  In fact, this is the entire point of investing, not just the most substantial one.  Making money by selling real estate or renting it out is the name of the game.  So to think that the game might be inaccurate can be pretty disappointing or even disturbing to find out that appraisals might not be quite right.

 

That, unfortunately, may be the case.

 

According to a study done in May of last year, appraisals might not be as accurate as we had once hoped.  The general theme is that appraisers have overvalued property.  The study indicated that property was overvalued by 35% on average.

 

The number by which the appraisal is overvalued is determined by the price at which the properties were sold.

 

Although appraisals were never an exact science, they have always served as a sort of marker for the worth of the building that helps establish a selling price.  Without an appraisal,sellers would be less able to set a selling price, putting both parties at a disadvantage.

Appraising a property isn’t just figuring out the worth; there are a lot of other details that appraisers determine such as the condition of the property, the size, and plenty of other important factors in a sale.  All of these factors determine things like the details of a mortgage, and if appraisers are wrong, a fairly common and obvious series of events can lead to something as severe as a foreclosure.

 

According to certain professionals in the industry, the standard has become choosing an appraiser based on price rather than on skill or qualifications.  A shift like is not surprising in a floundering economy where pretty much every company is looking for new ways to save money, but at what cost?

 

Everyone involved, from banks to investors, stands to lose with inaccurate appraisals.

Tatyana Levin

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