Does an Appraisal Completely Determine the Value of My Home?

How much weight is given to an appraisal with regard to the market value of my home? I’ve been told the sale price is determined by what a buyer is willing to pay. I’ve also heard that it is what the bank is willing to lend to the buyer. What does all this really mean to me as a seller?

The appraisal process can be confusing to both buyers and sellers. When listing your home for sale, it is important to ask your Realtor for guidance with regard to current market values. If you overprice your home, the problem may arise that it will not appraise for your buyer, resulting in a fall-through of the sale. Sellers sometimes have the sense that their home is worth a higher dollar amount than the appraiser sets. It’s important to know that appraisal guidelines are dictated by the lenders, and in some states there is a requirement to disclose what the appraisal will be used for, due to different rules to follow depending on the purpose.

Lender guidelines force appraisers to put a fair market value on homes based on comparable sales in the same area, and the home must be a comparable size and value, or “apples to apples”. There isn’t a base dollar figure related to a great view, pool, spa, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed at that common value [$15,000] on the appraisal.

For newer homes, upgrades can usually be stated at full value. This is due to the fact that during the construction process, those upgrades were obtained by the buyer putting more money into the original cost of constructing their home. Conversely, upgrading or remodeling an older home is seldom going to reflect the total costs in the appraisal. This happens due to the value of the original home (year built, etc) and using that apples to apples concept, the value of the upgrades must be supported by similar comparable homes in the same market area.

Typically, the comparable properties used are within the last six months of current market activity. Occasionally, a lender will also take a look at not just closed but also pending sales, to see if there is some leeway for negotiation. This is done to prevent appraisers from attaching too high a value to the home they are appraising.. Their guidelines still only allow appraisers to base their opinion on the value of homes that have actually closed escrow (sold). Pending sales can only be used as a support “comp” for closed (sold) comparables they use.

Drastic increases such as those seen in the past 4 years may allow the appraiser to make a concession and put more credence on comparisons to pending sales and listings, allowing for a “real time” appraisal. Remember to consult with your local Realtor to avoid the potential costly mistake of overpricing.