One of my clients recently called me and told me that her co-worker just bought a condo in downtown Chicago without getting an appraisal. I nearly freaked out. “What? Why?”, was all I could get out of my mouth because I was astonished by this. She said that their real estate broker told them that since they were buying the place cash (no mortgage) that they could save money by not paying for an appraisal. “Did they do it? Did they skip the appraisal?”, I asked. She said, “Yes, they did. I thought that was a bad idea. It bothered me so much that I had to call to ask you about it because I respect you and wanted to hear your thoughts on the issue.” I was honored by the compliment but the idea of someone being advised by a “realtor” not to get an appraisal REALLY bothered me.
An appraisal is usually required by a mortgage lender to make sure the property is worth at least the agreed upon purchase price. Since the mortgage lender is loaning you the money for the property, they want to make sure that you’re not overpaying for something and that it’s a solid investment. The appraisal is ordered by a third party neutral source to go out to the property and give a report of the value of the property based upon current real estate market condition. If the report gives a higher price value than the agreed up purchase price then, Congrats to the buyer they are walking in the door with equity. I like to think of it as if you got the house on sale and you didn’t pay full price. It’s a bonus. If the report gives a lower price, then you usually need to renegotiate the purchase price because you really shouldn’t be paying more than the property is worth. You’re walking in the door with negative equity.
If the report gives a lower price, then you usually need to renegotiate the purchase price because you really shouldn’t be paying more than the property is worth. You’re walking in the door with negative equity. Unless you absolutely can’t live without this property, I always advise my clients to make sure they are not overpaying on a huge financial investment such as a home. My advice is to either renegotiate to the appraised price or we find another home. I’ve been doing this almost a decade and I can tell you that I have not seen a property SO unique that you couldn’t find something similar within the same area for a fair market price, ESPECIALLY with a condo in Chicago. You can most likely find another unit in the same high rise or a similar high rise for fair market price. There really is no reason to over pay on a condo.
If the property had more than one offer presented to the seller and you had to increase your offer to win the property, then I can see how someone could “overpay” for a property. This is a different situation but I still would encourage the buyer to get the appraisal. This would help them know exactly how much more (if any because some agents list a property low just to get multiple offers) they paid over market price.
Hearing these kinds of stories just boils my blood because it makes it harder for the realtors who have their client’s best interest to get past the “slimy scammer realtor” perception that most people have. I have to fight that barrier with every new person I meet which is exhausting.
My advice to everyone who is purchasing a new home is to GET AN APPRAISAL. It doesn’t hurt you if you get an appraisal. Not knowing the current market value of the property you’re about to purchase, in my opinion, is not a smart move. If your real estate agent is advising you against it, I suggest you ask your trusted financial planner or real estate attorney for a second opinion. The appraisal doesn’t cost a lot (maybe a few hundred dollars) but in my opinion, you’ll be able to sleep at night knowing you didn’t unnecessarily overpay for your new home.
Just another reason why to interview your real estate agent before you decide to work with them. Have a conversation with them. Find out their background and read reviews about them. Also, don’t discount a new agent. I’ve known people who have solid financial business and sales backgrounds that made the career change to work in real estate which provides an additional benefit for their clients. Buying or selling a home is a big financial risk so you want to make sure you do everything you can to be informed and make a smart financial decision.
Shena Omotola, Dream Home Specialist & Broker Owner of Skyward Realty – Skyward Realty services Chicago, Suburbs, and Northwest Indiana
P.S. Feel free to email me any questions. I’m always here to help. Shena@SkywardRealty.com