Gaps Between Homeowner’s & Appraiser’s Opinions Widen

Gaps Between Homeowner's & Appraiser's Opinions Widen (Source: - used as royalty free image)

Housing markets have been stabilizing in recent months, and while this trend has many advantages for consumers, it can also create a new set of hurdles for buyers and sellers alike.

In many markets, for instance, we are seeing renewed confidence in homeownership lead to spikes in demand, even while home supply remains steady. This creates a situation in which home values increase rapidly. And when prices go up, it is easier for bank appraisals – the required home evaluations that help the bank determine a property’s value, in order prevent the bank from getting stuck with a house that is worth less than they have loaned against it during the mortgage process – to come up “short,” or under the list or contract price that a buyer has already paid.

In other words, homebuyers may see a large discrepancy between the list price that they paid and what the mortgage lenders actually perceive to be the value of the property. Just how large of a discrepancy are we talking about?

For some context, check out this graph from Keeping Current Matters, representing the findings of Quicken Loans’ Home Price Perception Index (HPPI), between spring of 2015 and the spring of 2016.

Appraiser Opinion of Home Value versus Homeowner's Estimate

What Does This Tell Us?

While the early months show the gap between the homeowner’s and appraiser’s opinions at reasonable levels, we then see the divide widen: In September of 2015, for instance, we saw appraisal values come in 2.65% below homeowner estimates.

And while this may not seem that dramatic, even a small disparity in value can have lasting effects on a homebuyer’s ability to secure a loan. Many home contracts fall through solely because of appraisal issues, and buyers who wish to close may be forced look into different loan options, including increasing their down payment or taking on mortgage insurance.

The Bottom Line?

The essence of the appraisal comes down to the fact that every home needs to be sold twice – once to a buyer, then again to a mortgage lender. As prices continue to escalate, making that second sale may grow even harder.

The good news? Having a qualified real estate team by your side can help you navigate the difficulties that come along with a “short” appraisal with greater confidence. As we have discussed before, a truly effective real estate agent may be able to help educate the appraiser on the immediate neighborhood and real estate market before you get a bad appraisal. And if the appraisal does fall short, your real estate team may be able to work alongside a mortgage lender to dispute the appraisal.

Looking for a steady hand to guide you through the ins and outs of the Chicagoland market? That’s where Real Group comes in! Our experienced team is here and ready to help you find your dream home, whatever it takes! Drop us a line whenever you’re ready to get the conversation started!

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