What is an appraisal anyway?
When we take out a mortgage, part of the process is an appraisal (Shamaut) of the property. An appraisal is a process in which an appraiser comes and estimates the value of our property.
- Buying an apartment from a developer: the apartment has something called a "zero report" (Doch Efes) - a report prepared by an appraiser while the project's business plan was being built
- Buying a second-hand property or a plot of land: the bank will ask us to order an appraiser and check the property's real value
Why does the bank require an appraisal?
Ordering the appraiser is part of the mortgage process. When we receive an approval in principle (Ishur Ekroni) for the mortgage, it includes a referral to an appraiser with a price list for the appraisal.
The bank wants to see that the price we are paying for the property is reasonable and that if, heaven forbid, it ever has to realize the property (=take it from us and sell it in order to get the mortgage back), it will be able to.
The "appraiser or contract, whichever is lower" principle
Banks work according to this principle. In other words - if we bought a property for 2 million shekels and the appraiser valued it at 1.9 - the bank will treat it as 1.9 million. If we bought it for 1.9 and the appraiser values it at 2 - the bank will again value it at 1.9 million.
So what is an early appraisal?
An early appraisal is a valuation of the property carried out before signing the contract with the seller. Instead of waiting until after you have already committed to buy, you order an appraiser in advance to know the real value of the property.
The difference in cost
If we do an early appraisal, before signing a contract - we will pay significantly more (in the order of 2,500 ₪ instead of 800 ₪, depending on the type of property).
When is it really critical to order an early appraisal?
Case 1: When you are at 75% financing and buying "on the edge"
One case is if we are at 75% financing and buying the property "by the skin of our teeth". In such a situation the appraiser's valuation can affect our ability to complete the deal.
Example
A property for 2 million and an appraisal of 1.9 million: the bank will give us 75% of 1.9 and not of 2 million. If we can "scrape together" a maximum of 500,000 shekels - we will not have enough money to complete the deal.
In such cases of a borderline deal - it is important to do an early appraisal, before signing a contract, in order to know how much mortgage we can get.
Case 2: An old apartment or a private house with potential risks
When we buy an old apartment that may have building violations or other problems or, for example, a private house whose plot marking may be somewhat problematic (quite common) - the appraiser, as part of the valuation, checks that the property is in order legally and in terms of registration.
The appraiser checks:
- That the property is built according to the plans
- That there are no building violations
- That there is nothing that could create problems in the future
- That the property is correctly registered in the land registry (Tabu)
- That there are no pledges or liens on the property
Remember - the bank wants to know that it will be able to realize the property without any special problems.
In such situations too - it is recommended to get an early appraisal and make sure that the property we are buying is in order and has no problems that could interfere with the deal or make it harder for us to get a mortgage.
When else is it important?
Plots of land
When buying a plot, the marking of the plot on the ground compared with the registration in the land registry is critical. Sometimes there are differences that can create legal problems or affect the ability to build on the plot.
Properties in problematic areas
For properties located in areas with planning problems, environmental hazards, or infrastructure problems - the appraiser will check all of these and may give a valuation lower than the asking price.
Apartments in old projects
Old buildings that require TAMA 38 or Pinui Binui (urban renewal / evacuation-and-construction) - the appraiser will check the status of the building and the chances that the works will be carried out.
The advantages of an early appraisal
1. Certainty before signing
You know exactly how much mortgage you will get before you commit to buy. This prevents situations where you sign a contract and then discover that the bank will not give you enough money.
2. Bargaining power
If the appraiser values the property at less than the asking price, you have a bargaining tool with the seller. You can ask for a discount or, alternatively, know that you are paying more than the value and decide accordingly.
3. Discovering problems early
If there are legal problems, building violations, or registration problems - it is better to discover them before signing and not after.
4. Peace of mind
You know that you are buying a property that is in order and at a fair price. That is worth the extra investment.
The disadvantages of an early appraisal
1. Higher cost
An early appraisal usually costs 2-3 times as much as a regular appraisal. It can be 1,500-2,500 ₪ instead of 500-800 ₪.
2. Delay in the process
You need to wait for the appraiser, schedule a visit, and then wait for the report. This can take from a few days to a week, and during that time the property may be sold to someone else.
3. Not always necessary
If you are not at 75% financing and you have a good safety margin, and if the property looks in order - you may not need the extra investment.
How do you order an early appraisal?
Step 1: Getting an approval in principle for the mortgage
First of all, get an approval in principle from the bank. The approval will include a price list of licensed appraisers that the bank works with.
Step 2: Choosing an appraiser
Choose an appraiser from the bank's list. It is important that the appraiser is on the approved list, otherwise the bank will not recognize the report.
Step 3: Scheduling a visit
Schedule a visit to the property with the appraiser. During the visit, the appraiser will inspect the property, take photos, and measure.
Step 4: Receiving the report
Within a few days you will receive an appraisal report. The report will include a valuation, a description of the property, and details of any problems.
Step 5: Deciding
Based on the report, you will decide whether to go ahead with the deal, negotiate the price, or give up on the property.
In short - when is it worth it?
In many cases of buying a second-hand property - it is worth paying some more money to know that we can complete the deal successfully. At the end of the day - we are talking about a few thousand shekels that can save us hundreds of thousands or even millions.
Sum it up for yourselves:
- Are you buying with 75% financing and financially stretched? Early appraisal!
- Is the property old, with possible building violations, or a private house? Early appraisal!
- Are you buying a plot or a property in a problematic area? Early appraisal!
- Do you have a good safety margin and the property looks in order? Maybe not needed.
Disclosure
I am not an appraiser and am not connected to any appraiser in any way. The information here is for guidance purposes only.
Anyone who wants to know more or get help - you are welcome to pick up the phone, write a message or send an email and I will gladly try to help.
Wishing you lots of success!