Common Questions About A Property’s Value
Appraised value vs listing price are two numbers that tend to create a bit of confusion and frustration for sellers and buyers. Many sellers feel that a well-maintained or upgraded property should be worth more on the market, yet the actual price a buyer will pay for a home may have less to do with the condition and may be more influenced by inventory or location.
The following answers to some of the frequently asked appraisal questions by sellers should help you gain a better understanding of what you might expect if you are planning on selling your property.
Why aren’t my home improvements reflected in the value?
Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away. Look first o the “guts” of the property, the electrical, heating & air, etc. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.
What about the homes in the next neighborhood that are the same?
However, the seller might still be stuck with a $450,000 appraised value like the three comparable properties on their street vs. the $750,000 they were hoping to list it for.
Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.
So basically, the seller simply over-improved their home for their specific neighborhood.
Why is there a difference between list price and appraisal?
It’s a great question, and you do not have to be a mortgage professional or a real estate agent to understand the answer.
The distinction lies in the purpose of the two valuations and who is responsible for creating them.
The purpose of an appraisal is to make sure that an independent non-interested third party verifies the “most likely” sale price based on the market value and condition of the home.
Appraisals are meant to be a realistic determination of the value of the home if it were to sell in the current market, in its current condition.
In addition, appraisers are governed by rules intended to standardize the subjective process of determining a home’s value.
Some of the key factors appraisers look at are: location, above ground size, room count, bathroom count, style of home, condition of property, amenities, and market conditions such as how long it takes for a home to sell and if values are increasing, decreasing or steady.
Appraisers are also asked to look only at comparable sales within a certain distance, usually one mile except in rural areas, and within a specified period of time, which is 3 months in the current market.
Listing prices on the other hand are influenced by the real estate agent, and set by interested and often emotional sellers.
Sellers are not held by any rules when they list a home. In some cases, sellers take what they paid for the house, add what they have spent on improvements and even add amount for profit.
Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs and cover the amount of the mortgages.
Extra low prices are generally the result of an extra motivated seller that has to sell and move in a rush, so they’ll list their property below market comps in order to be the most competitive.
Throw in bank owned (foreclosed properties). and listing prices may be all over the place without a logical explanation due to an asset manager decisions from another part of the country.
While the list price is never a good indication of what a home in your neighborhood is worth, appraisals are not an exact science that will determine the true value of your home either.
Some will argue that a home is worth what people will pay for it, so there’s obviously a little room for personal interpretation. Either way, the bank securing that piece of real estate for a mortgage loan generally always has the final opinion that matters the most.
Why are foreclosures included as comps?
Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use recent sales and trends as comparable values.
High foreclosure rates generally depress values and show a trend of constantly lowering value.
Why are similar homes in the same neighborhood valued so different?
Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order to rise with the tide.
Bottom line is, the appraiser looks at several things when determining the value of the property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.
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