Seller Resources - Articles

Selling Your Home - Appraisals & Market Value

What is the difference between market value and appraised value?
The appraised value of a house is a certified appraiser's opinion of the value of a home at a given point in time. Lenders require appraisals as part of the loan application process; fees range from $500 to $550. Market value is what price the house will bring at a given point in time. A comparative market analysis (CMA) is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker. Either an appraisal or a comparative market analysis is the most accurate way to determine what your home is worth.

How is a home's value determined?
A home's value is ultimately determined through the process of supply and demand. Supply and demand will determine the overall value of homes in a given area. To determine the value of a specific home, a REALTOR or appraiser looks for similar properties that have recently sold. Price adjustments are made on the sale prices based on differences between the sold properties and the property being valued, the 'subject' property. For example, if the sold property is larger, then its sales price will be reduced to compensate for the subject property being smaller. Additional adjustments are made for a host of factors such as quality of materials, view, lot size, etc. Once each sold property has been adjusted, the adjusted prices are averaged to determine the value of the subject property.

How accurate is Zillow?
Zillow estimates can be fairly accurate or wildly inaccurate.  Zillow can be pretty accurate if you have an average house in a homogenious subdivision. If your house is unique in any way, then the Zillow numbers are not accurate. If the subdivision consists of homes that vary significantly in age, upkeep, upgrades, etc., then Zillow will not be accurate.The general problem with blind programs like Zillow is that it cannot make adjustments for intangibles such as view, quality of construction, upgrades, distress sales, etc. Zillow is more accurate in subdivisions where the homes are fairly uniform and less accruate in subdivisions where the homes vary in age and quality. So, if you are checking a home in Granville or Quailwood, Zillow should be more accurate. If you are checking a home in the Prescott Country Club or PV Unit 19, Zillow should be less accurate. 

Are appraisals accurate?
It depends.  Just like with real estate agents, there are good and bad appraisers.  Your appraisal is only as good as the appraiser who created it.  Certainly there are standards that all appraisers must follow, but ultimately an appraisal is a subjective document.  One appraiser told us that an appraisal does not determine value, it merely validates the sales price. In other words, the recently sold properties need only to validate that the house could sell again tomorrow for at least the sales price. 

Who gets to pick the appraiser?
If there are good and bad appraisers, then who gets to pick the appraiser?  Unfortunately, no one does.  As a result of legislation that was intended to delink the tie between lenders and appraisers, neither buyers, nor sellers, nor lenders are allowed to select the appraiser.  A 'third-party' system was created.  In this new system, appraisal management companies were created.  These management companies have a list of appraisers.  When an appraisal is needed, the lender contacts that management company and the company assigns the appraisal to the next person on the list, be they good, bad, or indifferent.  For this added service, appraisals went up in price from $350 to $550.  The kicker is that many of the appraisal management companies are owned by the lenders!

What happens if the appraisal comes in below the sales price?
Lenders view appraisals as Gospel.  A low appraisal is next to impossible to fight, even if it has blatant mistakes.  If you get a low appraisal, your buyer's lender will base their lending limits on the appraised value.  If the appraisal is lower than the sales price, then several outcomes may occur: 1) the buyer might cancel the contract; 2) the buyer might bring additional funds to make up the difference; 3) the seller might drop the sales price to the appraised value; 4) the buyer and seller might agree to a price in between the sales price and the appraised value.

What standards do appraisers use to estimate value?
Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 200 W. Madison, Suite 1500, Chicago, IL 60606, 7 a.m. - 5 p.m. CT; 888-7JOINAI (756-4624).

Nancy and Brian Biggs
Nancy and Brian Biggs
1177 Old Chisholm Trail #B Dewey AZ 86327