When you invest in real estate, you’ll work with appraisers, often solicit their opinions, and of course, rely on their appraisals for your loan.

But never accept an appraiser’s opinion as the final word. To protect yourself against inaccurate appraisals, you must understand that some loan reps routinely tell their appraisers the value they need to make a deal work. In return, appraisers know that if they fail to give the right figure, the loan rep might select another. In other words, the appraisal might not accurately reflect market value for the investment real estate you want to buy.

Here’s the deal.

Let’s say you’re trying to purchase a ten-unit apartment complex for $800,000 and hope to get an 80 percent LTV loan, or $640,000. To verify that your sales price of $800,000 equals or exceeds market value, the lender will order an appraisal. If the appraisal report comes back with a figure that’s less than $800,000, the lender will use the lesser amount to calculate an 80 percent LTV loan. If it’s at or more than your purchase price you’ll undoubtedly get the loan you want, but should you construe that you’ve paid the right price? Well, not necessarily.

Just because a lender’s appraiser comes up with a market value estimate that matches your purchase price, don’t jump to the conclusion that the appraisal is accurate. You still must accept responsibility for your offering price.

Here’s the bottom line. When you invest in real estate, don’t naively sit back and expect the bank appraiser to do your work for you; be sure that you determine for yourself the market value of the property based on the numbers that you run and compile.

Feel free to leave me a message about this post below.