You’re wrong if you think this about appraisals

But my house appraised for $________.

Should I get my house appraised before we list it?

I hear this a lot. People seem to think that the appraiser determines the value of a property.

They do not.

Buyers and sellers determine the value.

An appraisal can happen for a lot of reasons. Most of the time they are done for a buyer’s lender. Lenders want to make sure the house is worth at least the purchase price since they will be on the hook should the buyer default. Those types of appraisals are more about justifying the sale price. Market value was already determined when the buyer and seller agreed on a price.

Other reasons a house might get appraised are for refinancing, divorces, bankruptcies, home equity lines of credit, etc. On those types, there is not a purchase involved so the appraisal is really just a professional guess at what the market value might be. An appraiser does not determine market value. The appraiser is not buying the house so they are not looking at it the same way a buyer would. They do not care about the color of the walls, if the kitchen is outdated. They just care about if it is in average condition or not. Ever see a listing that said “Priced below recent appraisal!” That tells you that the market did not agree with the appraisers assessment of value.

Last year I sold a house that I had renovated to rent. I was approached by a realtor with a client who wanted it. I decided to sell. We all agreed on a sale price of $205k. Well, the appraisal come back at $186k. The reason is because it was a split level house. An appraiser can only use a split foyer or split level house for sales comparisons on the appraisal report. Of the 40+ recent sales in that neighborhood, there were 4 that were split foyers or split levels, and all were terrible compared to my house. I get it, the appraiser’s hands were tied. Still though, the comps of similar square footage houses in similarly upgraded condition pointed to a value in the lower $200s, which was what I had a ready, willing and able buyer prepared to pay. Bummer.

A little off the subject, but realtors are really better at determining market value. We do pretty much the same thing appraisers do only we know the market a little better than appraisers. I am not at all trying to discredit appraisers here. It’s just we are the ones that go in houses with buyers and know how they will respond to things like barn doors, farmhouse sinks, 80s wall paper, the neighbor who leaves 4 dogs in a kennel all day, and how much natural light a house gets. We have experience with buyers and sellers leading up to signing a contract……still though, when we are called to list a house, it is still a professional guess at market value. Then the appraiser comes in afterwards more as a system of checks and balances to make sure the lender feels good about lending money on the house.

So, now you know that the appraiser doe not determine market value. Market value is like that old saying “Something is worth what somebody is willing to pay for it.” Realtors and appraisers use data to predict what market value should be but we do not decide what market value will be.

I wish my dog was an appraiser

This time of year is always tough for comps…..which is the term we use for recent comparable sales used to determine the value of a house.  Realtors use comps to determine a list price.  Appraisers use them to justify a contract price.  The thought is that the recent past will tell you what the market is doing now, but it really doesn’t work that way in a really good or really bad market when prices are either going up or down.

This reminds me of my old dog Julie.  She was a beagle.  She loved to go out in the yard and sniff around for critters.  I remember one time she was on the trail of a rabbit.  She had her nose to the ground and was on the trail of where that rabbit had been.  What she didn’t know was that the rabbit was right behind her.  That is how appraisals work.  They always know where the market used to be and never where it currently is.

Part of what makes this time of year tough is that the market for the new year is kicking off and we are looking back at late fall and all of the winter to determine value.  Sales are usually down in the winter and most of what sells are the leftovers from last summer.

So, we are looking at the worst times to sell to determine a value during the best time of the market.

I personally have a house that I sold for $200k.  It only appraised for $185k.  The best comps for my house were from 6-12 months ago.  So we have a big gap between what a real buyer with money will pay for a specific house and what an appraiser, whose job is to determine market value, says it is worth.

My current dog Sherpa is a dachshund-Jack Russell mix.  She has no problem keeping up with critters in the backyard.

I wish we had a system of determining value more like Sherpa than Julie.