Why Could My Home Appraise for Less than Market Value?
Location, home features, and market value all play a role in determining what a home is worth. When a buyer and seller agree on a selling price for a home, the buyer must then get a home appraisal done.
Most lenders will require a home appraisal for a mortgage. If a borrower defaults on a loan then the lender is responsible for the property. An accurate home appraisal protects the lender and buyer from paying too high of a price for a home. In some situations however, a home will appraise for less than market value, leaving a seller stumped!
When discussing home value, its important to know the difference between appraisal value and market value. The appraisal value is determined by a professional, a home appraiser. The appraiser will use a combination of factors to determine a value such as, location, features, upgrades, structural elements and comparable home sales. After assessing all of these things the appraiser will come up with a value that they think your home is worth.
The second type of value is called a market value. This number is driven by consumer demand. It is a value that a consumer would pay for your home. A real estate agent will often help the seller determine the market value of a home by comparing it to similar homes that have recently sold in the area. The market value usually ends up becoming the seller’s asking price.
Why is my home’s appraisal so low?
If a home appraises for less than what the selling price is it can be the result of a variety of things. One common reason is if the economy or market is declining there may not be a good number of recent comparable home sales for the appraiser to look at. As mentioned above, the appraiser uses this information to come up with the value for a home. If there isn’t enough information to use then the figured number may not be as accurate as it could be. Other situations like local foreclosures and short sales, even inadequately trained appraisers can affect a home value.
What can be done about it?
If the appraisal comes in lower than the selling price then the buyer and seller have to negotiate a lower price or the buyer will have to increase their down payment. Disputing the appraisal or getting a secondary appraisal are some additional options. The worse case scenario would be for the buyer to cancel the contract.
Can a low appraisal be prevented?
While the value of a home is ultimately determined by the appraiser, there are some things a seller can do to help the process. Sellers can schedule an appraisal before their home is listed, this way a selling price can be formulated based on the appraisal value. Both buyers and sellers should hire a local appraiser who will give a more accurate market value of the area. Things like school districts and neighborhood perks may not be something out-of-town appraisers would know but that would be relevant in formulating a value.
Many people may not know this but when hiring an appraiser a buyer or seller can provide them with some of their own research into comparable homes in the area. Finally it is important that any renovations done to a home be documented. This will show the appraiser the quality of your home. Renovation Tip: It is helpful to remember when you renovate that not every upgrade will lead to a higher home value. Do your research in your area as to what consumers want in a home before tackling major renovations.
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