The Loan Doctors Team

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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March 28, 2010 by · Leave a Comment

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The Loan Doctors is a team of very experienced Senior Loan Officers who have mastered the art of qualifying clients that would not otherwise qualify anywhere else. Much of our business comes from builders, when they cannot qualify their clients with their in-house lenders, and our Real Estate Agents, when their clients get declined with other mortgage companies. We understand that many potential home-buyers do not have perfect credit or perfect job history so we have built our whole entire business helping these home buyers that no one wants to help. We believe that credit should never be the reason why you are not able to achieve your dream of purchasing a home. When it comes to rebuilding your credit & restoring your dignity you need a team of experts behind you every step of the way. We are prepared to listen to you with compassion & understanding to help you move forward to a brighter future. During our consultation, we create a customized written plan for each client. Our staff will then follows up with each client regularly to ensure that the borrower is properly following on our recommendations. Our goal is to help our borrower's to get back on the road to financial recovery straightaway as soon as possible.

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