Appraisals Are Not A Statement of Value

Appraisals Are Not a Statement of Value

There have been a ton of changes in the real estate industry over the last ten years but none more than the appraisal business. If you have bought or sold a home in the last five years you know of some of the changes like the round robin system for choosing the appraiser. There have been many more changes but probably the biggest change that most people don’t know about is that today’s appraisal is not a statement of value. What do I mean by that?

Consistent with market value.

Again if you have bought and sold a property in the last five years you may have noticed that the appraisal always seems to come in at the exact purchase price. In fact we sell about a 100 homes a year and I would say that 99% of the appraisals come in at purchase price (not above and not below). Why is that? Because today’s appraisals are meant to confirm or deny the purchase price. They are NOT meant to tell you what your home is worth. Please do not miss that last sentence because that’s where most people get tripped up. Appraisers are looking at the contract and they are confirming that the purchase price is consistent with market value. This why the appraisals almost never come in higher than the purchase price and only sometimes come in lower than purchase price. Lets take a look at both scenarios.

Higher than purchase price.

Your appraisal came in higher than purchase price! Congrats, but my guess is that your appraised price is only slightly higher than purchase price (like 2000-5000 higher). This is because if the appraisal came in significantly higher than the purchase price the underwriter would be concerned. They would wonder what the appraiser did wrong or why the purchase to appraised price was so off. More likely than not the underwriter of the loan would throw out the appraisal and asked for a new second appraisal to be completed. So in the lending world a high appraised price is not a good thing.

Lower than purchase price.

Your appraisal came in lower than purchase price. This would be more common than the scenario mentioned above. If this happens something has gone drastically wrong. Most of the time the seller has priced the property way above market value, but believe it or not some one was actually willing to pay it. If this happens most likely the listing agent never met with the appraiser to present the comps and make a case for the purchase price. In addition if this happens most likely both the seller and buyer are headed back to the negotiating table. NOT GOOD!

Justifying the purchase price.

So what have learned from the two scenarios above. Appraisals that come higher or lower than the purchase price are bad. Appraisers know this, most agents that do this professionally and full time know this, but most consumers DON’t know this. They believe that the appraiser hired by the bank is going to give the TRUE value of the home. It’s doesn’t happen, it hasn’t happened for years and it’s not going to happen in the future. The appraiser it trying to justify the purchase price and will most likely bring in the appraisal at the exact number the house is under contract.

If you want to know more or want to talk with us about how we help our clients win the real estate market in Denver contact us at 720-446-6325 or team@coloradodreamhouse.com

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