Have you ever gotten an appraisal back on your home for a refinance (or sale) and found that it did not appraise for what you thought it should? Unfortunately this does occur on occasion. You may chuckle and say this occurs more times than not and you may think the appraiser is just a "deal killer", however you must realize that appraisals are based on actual market data and not a spin of the appraisal "value" wheel. Please don't blame us, we don't make the market, we just report it. Most people don't understand how we arrive at a value so I thought I would fill you in on some of the top reason where there could be confusion on what you think your house should be worth. So here are some top reasons why your house may not have appraised for what you thought it should, drum roll please:
- Bad real estate market- As you probably are already aware, the real estate market in most areas is down. You may not be unaware of how much depreciation is occurring in your area. The large number of foreclosures and short sales is affecting "normal" properties; this is unfortunate but a reality in today's market. We are likely to see this continue until the inventory of foreclosed properties is depleted.
- Cost does not equal value- This is a common problem with homeowners who have invested a lot of money in improvements and renovations. In a previous post I noted a website that will give you an estimate of how much of a return on your investment you could expect on some common home projects. Just because you spend $50,000 on home improvements does not mean your homes value will increase by that amount. It could be more, less, or the same.
- Your neighbor did not tell you the truth- I had a client one time that was selling their home themselves. They had priced their home based on what their neighbor (who recently sold their home and moved) had supposedly sold theirs for. The neighbor exaggerated a little and said he had sold his home for around $15,000 more than he actually did. My client figured that since their home was very similar to the neighbors they would list theirs for a similar amount. Because it was overpriced my client could not sell their home, which is why they called me. Always verify through public records before you take someone for their word.
- Tax assessment is wrong- In some areas the tax assessors have not revalued your property recently, so its tax assessment is based on old sales from several years ago, when prices were higher. It is not a good idea to estimate your homes value based on its tax assessment. In addition, you could be overpaying in property taxes.
- The real estate appraiser may not know your market- Last year a law went into affect that regulated how mortgage companies could order appraisals. Because of some confusion, most lenders are utilizing third party "Appraisal Management Companies" (AMC's). Some of these AMC's use fee as a main criteria in choosing an appraiser. The appraiser the AMC is using may be from out of the area and not know your market. It is always a good idea to ask the appraiser where they are from, how long they have been appraising (ie: experience), and if they have any experience doing appraisals in your neighborhood.
These are by no means the only reasons your house may not have appraised for what you thought it should. If I can answer any of your questions please give me a call and I will be glad to help. I can be reached at 205.243.9304.