I received a voicemail message from a friend in Scripps Ranch last week. Great news! In the course of securing a second loan on his home, he had the requisite appraisal done, and the appraiser said his home was worth $1.1 million! He shared this because he thought it would be great news for me and my client as well, as we have a similar home listed around the corner.
So what does this recent appraisal mean to me and my client or, for that matter, to the lucky appraisal recipient? Unless the appraiser was holding a prequalification letter, an earnest money check and an offer to purchase at the time, not a darn thing.
What is my friend’s home really worth? It is worth what a buyer is willing to pay. Period.
The old adage - Ask six Realtors, get six answers - applies to not only agent opinions of value, but to the opinions of appraisers and, yes, buyers. In the mid-1990’s, as case in point, Steve and I simultaneously had two separate appraisals completed on our home. One was for the purposes of a refinance (we wanted a high estimate, of course) and the other was for an appeal to lower our property taxes (we were hoping this appraisal would come in at, say, $1.95). When the results were in, the two “opinions of value” differed by approximately 10%, and guess which one was lower.
I am not suggesting that appraisers are not entirely objective, but, then again, maybe I am. They have their marching orders, they walk into the property with a target, and they try to hit it. Isn’t it curious that almost every appraisal for sale we see is within dollars of the purchase price? It would be nice to think that my pricing skills are so exceptional that I nail it every time, but the truth is that lenders get nervous when there is a large spread, even to the good, between purchase price and appraisal value. The appraisers know this, and they deliver.
So, back to your home’s value being that which a buyer is willing to pay. We always advise our clients that this true value is in reality a range of value as well. While one potential buyer may find that your extensive use of sage green Italian marble does not perfectly fit his personal needs and wants, another buyer is going to swoon over the your Zen garden complete with a vast array of decorative gnomes. One will place greater personal value in your home than the next.
Your home is worth what a qualified buyer is willing to pay, so it is essential that you expose your home to the widest possible audience in order to maximize your sale price. And, as we have said many times before, in a slower market, this requires not only proper pricing but more than a little patience.
{ 1 trackback }
{ 3 comments… read them below or add one }
Jay Thompson
07.26.07 at 8:20 am
Thanks for this Kris. I’m going to slip it under the door of a seller we currently have. I can’t tell you how many conversations with them start with, “But we have this appraisal that’s only two weeks old. It says….”
I can’t seem to help them understand what the appraiser says doesn’t mean diddly squat.
Reuben Moore
07.26.07 at 11:24 am
This business of (the lender) supplying the appraiser with the contract (upon ordering the appraisal) has never made any sense to me. Frankly, I think it should be illegal….
Steve Berg
07.27.07 at 8:26 am
Kris - As you suggest, agents need to establish and provide sellers with an expected sale price with only the benefit of comp’s and our experience. It forces us to be as objective as possible. I agree that an appraiser should not have the “answer” (i.e., the contract price), prior to completing their report, as it completely eliminates the objectivity they are supposed to provide.