The Effect of Rising Prices on Home Appraisals

The Effect of Rising Prices on Home Appraisals

We’ve got some good news and some bad news.

Let’s start with the good news: Residential home prices are continuing to rise throughout the country. Unfortunately, if you’re looking to buy or sell a home at the moment, that may also be the bad news.

A hot real estate market can create new challenges, particularly when it comes to appraisals. As we’ve discussed before, every house must essentially be sold twice: once to a buyer, and then to a bank, which will grant the purchaser a mortgage in order to buy the property. This appraisal process is designed to protect the bank from getting stuck with a property that is worth less than they have loaned against it during the mortgage process.

In a market with rising home prices, buyers may be more likely to see a discrepancy between the list value and the appraisal value. And a recent study by Quicken Loans shows that the gap between what a homeowner and an appraiser consider the value of a home is growing wider.

Let’s take a look at this infographic, thanks to Simplifying the Market:


As you can see, the gap between appraised home values and homeowner estimates grew over the course of 2015, and we can expect the trend to continue in this new year.

What Does This Mean for You?

Of course, there are any number of factors that go into the appraiser’s decision, including the location, size, and history of the home in question.

But we believe it’s always best to be prepared for any outcome, and at the moment, the secondary sale to the bank could be a challenge for home buyers. As we move into 2016, expect to see a greater number of “short” appraisals, those where the appraiser’s value is less than the contracted price of the home, which could lead to renegotiations on pricing.

How do you avoid this? A good real estate agent may have the ability to help educate the appraiser on the immediate neighborhood and real estate market before you get a bad appraisal. 

Let’s end with one last piece of good news: If your appraisal does come up short, there’s still hope! It is possible to dispute and appeal appraisals with the help of your mortgage lender and real estate team; we’ve got more information about finding the right loans and disputing a short in this handy article.

Confused about how to get started in the home buying process? Wondering about your next steps now that you’re under contract? Drop Real Group a line! We have the team and the experience to guide you through all of home buying’s unexpected ups and downs.

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