Tuesday, November 26, 2013

Understanding residential real estate appraisals

Any home purchase that requires a mortgage, needs an appraisal.  The lender orders it and buyer pays for the appraisal, an opinion of value from an independent third party - the appraiser.  The idea is for the lenders to reassure themselves, that the property is worth the purchase price.

A while back I had written a blog about how to determine the market value of your home - based on recent, local, comparable sales.  The appraiser does exactly that, and puts forth his opinion of value.  It is only an opinion of value - because 2 appraisers could value the same property at the same time, and come up with two widely differing values/opinions.  While the criteria is pretty objective, there is  huge subjective component, in that the sale comps picked, and adjustments done for important home features like finished basement, backyard patio, pool etc.  Final values could vary widely within a neighborhood based on how appraisers value upgrades.

In a relatively stable market appraisals would be non controversial since the purchase prices are relatively stable.  However when the real estate market is booming, appraisals become a concern, because the market demand is fast outpacing supply, especially in desirable neighborhoods.  We have experienced some of that in the Spring 2013 real estate market, when the buyers rushed to lock in the low interest rates and inventory levels dropped, resulting in multiple offers.

As a home seller, you need to know which upgrades add value to the home and which ones are purely cosmetic to attract the buyers.  You may feel you have a buyer and the contract is signed and now its only a matter of time.  Well, you cannot assume until all contingencies, including the appraisal contingency, have been satisfied.  The buyer may want to renegotiate in that case.

For buyers, in a rising market if you think you are overpaying for your home, that is your safety net.  You know if the property appraises at purchase price that you are not overpaying .

Many ways in which agents can protect their client's interests - whether home buyer or seller.  Work with full time agents who are aware of market values and have specific strategies to counter this uncertainity.

Call me to discuss your specific situation.

Bela VoraREALTOR®, 
Coldwell Banker Preferred - Exton
Office: 610 363 6006; Cell: (484) 947 3127
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