Determining the Value of Real Estate
Published 12:58 pm PST Friday, November 19, 2004
Print | E-Mail | Comments (0)
Where to Start
One of the starting points of any FSBO transaction is to accurately determine the price of the property. The reason is simple: almost every real estate contract is contingent upon an appraisal. Appraisals are required either by the lender (if a new loan is required) or the buyer (on cash or owner-financed transactions). Regardless of the type of financing used, the property must appraise for its full sale price.
Since it typically takes between 2 to 4 weeks to obtain an appraisal (it takes longer in the summer or when the number of refinance loans is high), neither the buyer nor the seller may know the appraised value until shortly before the date of closing. If the appraisal comes in lower than the sales price, the standard California contract allows the buyer the following options:
- Terminate the contract without further negotiations.
- Negotiate with the seller to pay more cash for the home.
- Negotiate with the seller to reduce the sales price.
In short, the buyer will have the option of deciding whether to proceed with the purchase.
Despite the very real power of a buyer walking away from the deal due to a low appraisal, a bad appraisal is a tragedy for all parties, including the buyer. After all, the buyer may lose a home that was otherwise ideal for his/her family. Therefore, it behooves all parties to come up with an accurate price before a contract is signed.
