The economic downturn and resulting housing crisis has resulted in a number of changes in how Americans both choose their homes and finance them. For instance, more are renting vs. buying their homes than ever before. Yet another surprising shift is the number of buyers purchasing homes in cash, thus eliminating the need for financing.
According to analysis by Goldman Sachs Group, approximately 20 percent of homes sold before the housing downturn were all-cash purchases (about 30 percent by dollar volume). That amount has nearly doubled in recent years.
This may rightfully raise concern that this all-cash phenomenon may decrease the need for residential appraisal services.
Cash sales offer an obvious benefit to sellers, since forgoing an appraisal is one less obstacle to hold up a sale. It may also make an offer more enticing in a multiple bid situation.
Buyers would be well-advised, however, to have an appraisal conducted before closing on a sale.
An appraisal will help ensure the buyer is not overpaying. This is particularly true for out-of-town buyers or those new to a metro area. Investors and those relocating from some of the most expensive metros tend to overpay since they are unfamiliar with the market and are more accustomed to lofty home prices. An appraiser should be knowledgeable about the area and able to offer advice.
If a buyer plans to rehab the home, an appraisal becomes even more necessary. A qualified appraiser can not only provide advice on whether improvements will be profitable, they can also advise which improvements would be most likely to offer a return on investment – even before the initial investment is made. The appraiser can perform a feasibility study, in which he or she analyzes the property and cost of rehabilitation, and provides the buyer an estimate of the value before and after the improvements.
Finally, an appraisal offers the buyer peace of mind. Considering the overall investment of a home, an appraisal seems a small price to pay to ensure you’re getting all you bargained for.
Appraisers and real estate professionals, have you had experience with appraisals on cash home purchases? Share your experiences in the comments below.