Most Utah Homebuyers believe that the appraisal is being done to protect the Buyer. Although it may ultimately do so, the appraisal is really to protect the lender.
Appraisers are hired to protect the Buyer's lender(s). A main part of their job is to determine if there is enough collateral value in the property to protect the lender's lien-holder position.
In some markets, appraisals may be routinely performed before presenting offers. In Utah, it is more common to order an appraisal after a contract price has already been agreed to. In this case, most Buyers will include an appraisal contingency in their offer, allowing them to have the option of cancelling the contract (and getting back their earnest money) in the event the home appraises for less than the contract price.
Buyers should not rely on a past appraisal value in determining how much they will pay for a property. Sellers or their agents will sometimes promote that a property was recently appraised for thousands (or tens of thousands) more than the asking price. An appraisal which was done for the purpose of securing a home-equity or consolidation loan is different from an appraisal which considers the value of a property to secure a first mortgage. At any rate, that is a topic for another discussion.
As your Exclusive Buyers Agent, we will help you determine fair market value before writing an offer on a property. Our goal as your representative is to protect YOU and your best interest ONLY...
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True, it does protect the lender. The thing is though that the appraisers will always look at the purchase price and try to appraise it at or very close to that price. They obviously don't want the deal to fall through.
Benjamin,
Some of my cash buyers will actually order an appraisal, in which case you could say that the appraisal is being performed for the buyer's protection.
in 25 years as a mortgage lender in about 10 different states i have never seen an appraisal contingency.
but i wish i had. it sounds like every buyer should have one.