When a home is put on market for sale, there are two values which can come into play: market value and appraised value. Even though these values can be the same, it is important for buyers and sellers to understand the difference, as well as be prepared for the difference in the two to factor into the deal. Buyers’ and sellers’ contracts hinge on these values. Not being familiar with how they affect the flow of the process can set both parties up for disappointment.
“Market value”: What buyers are willing to pay for a property. Depending on the area in which buyers are purchasing a home will affect the market value. The supply of homes in a certain area’s inventory greatly affects the value of homes, as well. When the inventory is low the prices go up and when the inventory is high the prices go down.
“Appraised value”: The value an appraiser gives the property in their unbiased, professional opinion. Banks hire appraisers to do a market analysis and come up with a value based on the comparable sales. For example: Area, condition of the home, the location of the property, etc. Typically, when securing a mortgage to purchase a property the sales price will not be higher than the appraised value.
At times, the buyers’ offer price will exceed the appraised value. When this happens the buyers or sellers may present the appraiser with comparable sales to support the offer price. “I had a property listed for my sellers that did not appraise for the buyers’ offer price. I presented the appraiser with the comparable sales I used to set the price and he ended up agreeing with me. Normally that does not happen,” said Erich “Rak” Sorensen, Realtor.
More often than not, the appraised value does not change when the buyers or sellers appeal to the appraiser with different comparable sales, even though the market value is higher than the appraised value!
When the appraised value does not equal the market value it can kill the deal. When buyers are not willing to pay the difference or the sellers are not willing to take less money for their home, both parties can walk away. “Typically I try to get all of the sides involved to give a little in order to keep the deal together. If the buyers, sellers and real estate agents can all pitch in a bit normally the deal can be saved,” said Erich “Rak” Sorensen, Realtor. Whether the market is hot or cold, market value is huge, but typically the appraised value is the key to closing the deal!
To contact Erich, call (931) 980-2350.