Maryland Real Estate

Understanding the Difference Between an Appraisal vs Neighborhood Listing Prices

Why is there such a difference between what my appraised value is and the price similar homes are selling for on my street?

It’s a great question, and you don’t have to be a mortgage professional or a real estate agent to understand the answer.

The distinction lies in the purpose of the two valuations and who is responsible for creating them.

Appraisals:

The purpose of an appraisal is to make sure that an independent non-interested third party verifies the “most likely” sale price based on the market value and condition of the home.

Appraisals are meant to be a realistic determination of the value of a home if it were to sell in the current market, in its current condition.

In addition, appraisers are governed by rules intended to standardize the subjective process of determining a home’s value.

Some of the key factors appraisers look at are: location, above ground size, room count, bathroom count, style of home, condition of property, amenities, and market conditions such as how long it takes for home to sell and if values are increasing, decreasing or steady.

Appraisers are also asked to look only at comparable sales within a certain distance, usually one mile except in rural areas, and within a specified period of time, which is 3 months in the current market.

Listing Prices:

Listing prices on the other hand are influenced by the real estate agent, and set by interested and often emotional sellers.

Sellers are not held by any rules when they list a home. In some cases, sellers take what they paid for the house, add what they have spent on improvements and even add amount for profit.

Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs and cover the amount of the mortgages.

Extra low prices are generally the result of an extra motivated seller that has to sell and move in a rush, so they’ll list their property below market comps in order to be the most competitive.

Throw in bank owned homes (foreclosed properties), and listing prices may be all over the place without a logical explanation due to an asset manager making decisions from another part of the country.

The Verdict:

While list price is never a good indication of what a home in your neighborhood is worth, appraisals are not an exact science that will determine the true value of your home either.

Some will argue that a home is worth what people will pay for it, so there’s obviously a little room for personal interpretation.  Either way, the bank securing that piece of real estate for a mortgage loan generally always has the final opinion that matters the most.

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Related Appraisal Articles:

• Mortgage 101 – Appraisal Basics
• What Do Appraisers Look For When Determining A Property’s Value?
  
• Five Myths About Home Values
• How Do Mortgage Companies Value A Property That Hasn’t Been Built Yet?

This entry was posted on Sunday, March 28th, 2010 at 12:47 pm and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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