Appraisals Versus Real Value

I have had to address this topic four or five times over the last few weeks so I thought I would address it here.  Your appraisal is different than the actual value of your home.  (Appraisers, you are certainly welcome to weigh in on this post if you like.)

Let me say that again.  Your appraisal is not the value of your home. 

Pass is forbidden. The Policeman forbidsMost appraisals are ordered to support or not support the bank’s loan on a home.   An appraiser comes out, looks at trends, comparable houses and their sales prices and determines whether or not the home in question is similar in so many ways.  Then that subject home either falls in to a range that is acceptable to the bank or it does not.

I like to help people buy homes in neighborhoods where the house they are purchasing has hidden equity.  If every house in the neighborhood has sold for $200,000 in the last 6 to 12 month and we are buying at $180,000 then you’d like to say you have $20,000 of hidden equity right off the top.

But not so fast.  Are you an anomaly purchase or is the neighborhood heading in that direction?  One below market sale in a neighborhood is no big deal.  Two can raise an eyebrow.  Three or more in a six month time period is a very large red flag.

When you look for hidden equity there is a lot to consider.  How established is the neighborhood?  How close are schools, employment centers and shopping?  What is the surrounding area like?  Historical value?  And a few other items to check off. 

A seller and a buyer determine value.  An appraisal supports or denies that value.  Nothing more, nothing less.

Now if you are in the mood we can discuss how appraisals are one of the chief reasons we got into the mess we are in today.  Appraisals were supposed to help guard against what happened happening.

2 Comments

Filed under Financing Options, Kansas City Real Estate, Misc. Real Estate

2 responses to “Appraisals Versus Real Value

  1. loganx80

    How many times have you had to address that county appraisals are not the same thing as a home’s value? We bought our house (a past foreclosure) for about $70,000 under the county appraisal. Promptly, the next year our county appraisal also dropped $70,000. We are thankful for the tax break, but you can imagine that we will dispute that tax value in future years if we choose to sell.

  2. Tax appraisals have little to do with real value. Belieive me. I see tax appraisals way over and way, way under. The severity varies from jurisdiction to jurisdiction, as well.

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