Those buying real property in New York often feel sticker shock as they prepare for closing. Obviously, buyers offer a specific price for a property, so the cost of an actual dwelling unit likely isn’t a surprise. However, they will typically need to cover an assortment of other costs in addition to the base price of the home that can drastically increase what they pay for real property overall.
There are title insurance costs and inspection fees. Most people recognize that a professional inspection is necessary to protect them from latent defects. Oftentimes, there will be an appraisal in addition to an inspection, although many buyers are less certain about the ultimate value of an appraisal.
Unlike an inspection, which provides a report about the condition of the property, an appraisal is simply a way to establish the likely fair market value of a property. Is an appraisal actually necessary to buy real property in New York?
Lenders often demand appraisals
The company financing a real estate transaction will transfer hundreds of thousands of dollars at the time of closing so that the buyer can purchase the property. That massive transfer is a risk for the mortgage lender. If the buyer defaults on the loan for any reason, the lender may have to foreclose on the property to recoup those funds. Therefore, lenders generally require appraisals prior to closing to ensure that a home can actually command the amount paid for it on the open market. Those buying real property with a mortgage will have no choice but to cover appraisal costs because their lender requires the protection of an appraisal.
Cash buyers benefit from appraisals as well
Those using the equity from an existing property or liquid capital to purchase a home have more control over the terms of the closing and what services they utilize. An appraisal is one way of ensuring that a buyer with liquid capital for a purchase does not pay more than they should to be competitive on the New York real estate market.
After all, it will be their resources covering the purchase price. They have an interest in validating that they can recoup at least an appropriate price when they want to sell the property again in the future. Although an appraisal is not strictly necessary when purchasing a property with cash or using seller financing, buyers may benefit from that extra layer of protection before transferring funds for the closing.