In a recovering real estate market the home appraisal can become stumbling block to a smooth closing.  According to an article in the Wall Street Journal one-third of real-estate agents said the appraisal process resulted in buyers and sellers delaying or canceling contracts or renegotiating to a lower sales price last year,  up from less than 10% in 2008.

The Recovering Market and Appraisals

The recovering market itself may be partly to blame for the appraiser’s undervaluing of a home. Appraisals can undervalue properties when markets are rising because they look backward at lower valuations. Since appraisers base appraisals on the prior 6 months of sales data they may not adjust for the natural rise in a recovering market and create a discrepancy. Logically if housing prices were ALWAYS based on the prior 6 months homes would ever appreciate.

Market Value vs. Appraised Value

The market value of a home is what someone in the marketplace is willing to buy it for. In some cases it is different than the appraised value. The reality is that market values should be driving appraised value to a point. If a rational consumer is willing to pay $200,000 for a house, there is god reason to believe that if the home were to be resold within a few months the sale price would be similar. Appraised values should line up with negotiated contract prices in most instances.

Incomplete Appraisals

Another shortcoming is that appraisers have become accustom to simply looking at pictures of the subject property and comparable properties and never actually visiting them. Or they may just drive by the neighborhood to speed up their work. These incomplete appraisals fail to take into consideration property condition especially if a home owner has made material upgrades to the condition of the home compared to others in the area(no – new paint is not considered).

How Do We Protect Ourselves From Bad Appraisals?

• As a Buyers, use a contingency clause in the contract! It gives you the flexibility to renegotiate the home price, get a new appraisal, or exit the transaction based on an appraisal that is lower than the negotiated sale price.

• As a Sellers, research county records! You or your Real Estate agent should search the county’s property tax records.   Since those numbers are updated  every 3 years (in Hamilton county Ohio) it is possible that the county’s figures are out of date and low. If an appraiser uses that data he is missing 3 years of valuation.

Thinking about selling and concerned about your home’s current value? Call me and I can help! 518.1140