I sold a house a few days ago. The listing agent told me that it appraised for $25k more than the list price.
Which begs the question: Why didn’t it sell for that?
Because there is a big difference between market value and appraised value.
Market value is what the house is worth to a buyer. Appraised value is a way to spend $375 and still not really know the market value. The main purpose of an appraisal is to justify the purchase price to a lender.
Lots of things affect market value, such as floor plan, decor, features, view, lot size, odors, etc.
An appraiser doesn’t care about any of that. I mean, they aren’t buying the place so it is all about comparing data to them. Square footage, condition and what has sold in the area recently are what drives appraised value. Appraised value is often more about the area the house is in than it is about the subject house. I’ll also mention that in an appreciating market, appraisals are often incorrect because the data they use is recent history. In other words, the current appraised value is based on the past. Market value is always in real time.
Which leads me to this house that I sold.
The area around the house has homes that are 20 years old to brand new. Values are all over the place. The brand new houses that are the same size as the one I sold go for $50-75k more than what my client paid. The same size house in the nicest section of the area is a lot more too. By comparing my client’s new house to the more expensive and brand new houses, I can see how the appraisal was more than $25k higher than the actual sale price.
How did I help my client determine what the house was worth? I excluded the more expensive houses up the road. I excluded the brand new homes since that is a unique sale-they are only new once. I looked at similar sized houses. I looked at the finishes of each house. Did they have hardwood? What were the appliances like? What was the backyard like? I looked at all the pictures of every comparable recent sale. Then I thought about it. I made adjustments for size and condition just like an appraiser, but I also thought about it through the eyes of a buyer. I then told her what I thought the house was worth and she made an offer.