Well Below Assessment BS

I was reading an article about a class action suit (still pending resolution, no allegations proven) against the developer and owners of a condominium project. From the article:

The lawsuit alleges that Jurock and his associates provided purchasers with marketing materials stating the purchase price of each unit was about $10,000 below the appraised value. However, the lawsuit claims, they did not have appraisals to support that claim.

On an unrelated property on Mr. Jurock’s website (on the site as of 17 July 2011) is a Hot Property that is “Listed at only $599,000 (well below assessment)”.

So I asked myself, what does “below appraised value mean” – and came to the conclusion it means “the purchaser is being misled”.

It feels that the use of Below Market Value (BMV) is an attempt by the seller to install a belief that the purchase will generate an instant increase in equity when purchased. It’s the mythical money for nothing argument. Purchase this property, and you will instantly have an asset worth more than you purchased it for.

When in reality, the property is worth exactly what you purchased it for (actually, it worth what you purchased it for minus about 5% for the cost of reselling the property and changing a fixed asset into something liquid again).

And there are questions that the class action suit referenced above raises about appraisals – who has performed them (do they work for the developer), is the appraisal reflective of what is actually inside the unit (which could reduce the value), is there actually an appraisal, how long ago was the appraisal performed, and what is causing the property being sold below appraisal value?

As its own, I find an appraisal should be generally ignored or used as a very small part of your decision to purchase a property or home – and always raises more red flags then it answers questions.

Always purchase only if this is a place you want to live, and if you negotiated a price that you feel is appropriate for the market, location, building reliability, and your love of wanting to live in that home (even if you are buying as an investment property – if you wouldn’t love to live in your investment, then it’s likely hard for someone else to emotionally commit to rent the residence as well).

It is almost impossible (I verge on saying totally impossible) to buy a property that on completion of the transaction magically becomes more valuable than it was sold for.

I guess when I see the term BMV, I think (and sorry to car salesmen, I’m running off of a stereotype here) that the realtor is scuzzier than a used car salesman.