Why Does My Home Appraisal Differ From The Market Value
As appraisers, we are not only paid to determine the market value of a home, but also how much it costs to own that home. We look at both price range and cost factor when calculating market values.
The cost factor is very important because it determines what proportion of the property owner’s income goes into the house. If you make $300,000 per year as a doctor, then your housing expenses should be limited to 20% of your income. But if you earn $1 million per year, then your housing budget can be closer to 30-40%.
That means if you want to keep up with the Joneses, you will need to spend more money! Or perhaps they don’t have a swimming pool in their backyard? It all depends on what items are considered “housing” and what isn’t.
Market value is always influenced by the current market conditions, but the cost factor is dependent on the seller. They decide how expensive or cheap their home is by comparing it to other homes within its area and category.
If you have ever seen a house for sale that seems way too good to be true, then it probably is. The sellers may put out exaggerated numbers about the size of the lot, the amenities, or the asking price. This happens most frequently in high demand areas where there is competition for the same listings.
Appraisers are not financial experts
As we have seen, an appraiser is someone with professional certification who can conduct a detailed inspection of your home to determine its value.
However, what most people don’t realize is that while an appraisal is very helpful in determining a home’s market value, it does not necessarily tell you how much your house is actually worth.
This can be confusing for both buyers and sellers since they may want different answers from each other!
While having an objective third party evaluate your home is great, remember that appraisers are only able to give you an estimate. It is up to you to take this information and come to your own conclusion about whether or not to buy or sell your home.
Also note that even if an appraiser and yourself agree on the price of your home, there will still be some time needed to complete the sale process. This means that the two parties won’t always be aligned financially.
Appraisals are subjective
While an appraiser is trained to use certain standards, what those standards mean depends largely upon who’s doing the appraisal.
In fact, there is no standard set price for any property. This makes sense because people have different needs and wants in their homes.
For example, someone may want to live in a large home with lots of space, whereas another person might desire more intimacy by living in a smaller house.
A third person could be seeking investment return through renting out a room or the whole house. All three of these things are reasonable ways to value a house.
There are many examples of this where one person values a house higher than its market value while others feel the opposite. A similar thing happens when sellers undervalue their houses.
What seems like a low price to some may still be too high for other buyers.
Home inspections are expensive
As we discussed, home inspection costs vary quite a bit depending on who you hire to do the inspecting. Some will be much more expensive than others- especially if they’re not familiar with the area or the market value of your house!
In fact, some inspectors may even purposefully undervalue your property in order to get paid more money for their services. This is very risky as you could end up getting a lower price on your house later!
Home appraisal fees are also inflated due to all of the “fees” that must be paid for being an inspector. These include fees for being certified (which only a few have), fees for using certain software to calculate values, etc.
Overall, these extra fees add up which is why it is important to shop around before hiring anyone to inspect your house.
You need to have good credit
When you’re buying or selling a home, one of the most important things is determining its market value.
This is how real estate agents and appraisers determine what your house is worth!
Market values are usually determined using both internal and external factors.
These include features such as the property, the surrounding area, recent sales in similar houses, and online properties for sale.
The price an agent quotes for your house is also influenced by their seller agency (if they represent the seller) and whether they work for you or not.
There may be additional fees for this too, so it’s best to do your research before you pay anyone else’s asking price.
A lot of people make a small fee per hour to act as an agent, but there can be much higher overhead costs involved as well.
So, while they’re probably trying to help you, keep tabs on what the total cost will be before you hire them!
Another thing to consider is whether the person putting up the money has appropriate insurance. For example, if they put down a mortgage, does their loan fall under ‘credit check’ regulations? If so, they would need to prove they have enough income for maintenance of the house.
If nothing like this exists, then they could potentially go bankrupt later.
You need to have a good title to the property
As mentioned before, you as an appraiser must include the price of your home when determining market value. But more than that, you should be including how much your house is worth not just now, but also what it could potentially sell for in the future.
This includes both short term and long term values. Short term values are things like its current list price with an auctioneer, or what someone else has paid for it recently. Long term values are determined through using comparable sales – other homes that are similar in style and size sold at a certain amount many years ago.
By having these two components, we get a better picture of what the house is actually worth.
You need to pay to be a party of the transaction
When you get your home appraisal, there’s an additional fee that is typically not included in the price. This cost is called the commission.
A professional appraiser has their own set fees for doing business. These fees include a commission or profit margin for being involved in the sale of your home. Some lenders require this as part of the process to fund a loan.
Since they are taking money out, it makes sense that they would want some compensation for overseeing the process and ensuring everything goes well. This is why there is a small commission added onto the market value of a property.
Typically, the appraiser will ask if anyone else has asked about the value of the house before them. If so, then they use those numbers to come up with their own, which is usually within a few thousand dollars of what others have said.
You need to be able to get a loan
When you apply for a mortgage, your lender will require an appraisal of your home. This is usually done by a professional appraiser who makes an estimate of how much money someone would have to spend to make changes to your house and then add onto that number how much your house is worth now.
These two numbers are then compared to determine if your house is overvalued or under-valued so that you can get more credit in the form of a lower monthly payment!
However, what many people do not realize is that even having the same appraisal as another person does not mean that their appraisal is correct.
There are several reasons why this happens including:
The appraiser may use different criteria to come up with his/her price
Other things such as condition, location, and floor area matter in determining value
Appraisers cannot agree on one thing — yours!
It is very important to understand real estate terminology, conditions, and properties like a pro before trying to assess market value.
There are many factors that can affect the market value of a home
While having lots of bathrooms or a beautiful view may attract potential buyers, this article’s not going to tell you whether those things are worth more than your house.
The perception of a home’s value is very subjective – what seems like a great property to one person might be irrelevant to another. Property values fluctuate due to several different factors, including:
Location — where a home sits in relation to other homes in close proximity
Size — how much space a home has
How it's decorated — such as with windows and bright colors
Features — such as an attached garage, swimming pool, or rooftop terrace
There are also certain expenses that belong exclusively in the category of "property owner fees" (such as homeowner association dues), which have no effect on the value of neighboring properties but do factor into yours.
It's hard to separate out individual effects, so instead we use statistical tools to determine how much each factor contributes to the overall change in value. These numbers help us understand how important each element is when determining a home’s price tag.