With the real estate market in such a sharp tailspin lately, many banks have been having a lot of trouble establishing the true value of the home they are supposed to be lending on. Normally they hire a third party valuation expert, called an appraiser, to assess the value of the home and report back to them. Appraisers are certified real estate experts who can validate the worth of any real estate and are the most reliable way to do so.
In an appreciating market appraisals are relatively easy because appreciation cushions the bank, so if they have to take it back it has most likely increased in value. This would bring ready buyers and the banks would not have to hold it before they could liquidate it. In a depreciating market, conversely, the bank may have to hold the home in their REO inventory for quite some time before they can sell it, making an accurate appraisal all the more important.
An appraiser can not just be someone off of the street. An appraiser is a formerly trained person who knows the trends and values of the local real estate market. The objective valuation an appraiser is supposed to provide cannot be influenced by buyer nor seller or the entire appraisal may be corrupted and unreliable.
The party responsible for hiring the appraiser is the bank, but the buyer typically ends up paying for the appraisal in most cases.
When, in the rare case, an appraiser cannot justify the financed amount for the subject property the course of action usually heads one of two ways. The transaction is either dropped and forgotten about, or the seller or the buyer will make an adjustment to allow the transaction to continue.
Either the asking price must be reduced or the buyer will put down a larger down payment to offset the valuation shortfall.
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