Why Do Appraisals Come In at Sales Price? (2024)

An appraisal aids in buying your prospective home at its accurate market value. Moreover, an appraisal plays a role in influencing both the selling price and the mortgage amount. But, do you wonder if the appraisal value is absolutely correct? And, why do appraisals come in at sales price in most cases? Let’s find out.

What is an appraisal?

An appraisal is a way to figure out how much your property is worth. It considers things such as where your property is located, its age and condition, total square footage, and recent sales of similar homes nearby. An appraisal not only gives you an idea of the property’s value but also helps a lender decide how much they can loan you to buy the property. We will help you understand how this works.

What does a professional appraiser do?

A licensed appraiser is responsible for determining a home’s value. They are trained and qualified to assess the value of an asset, often for the purpose of determining its market or fair value.

An appraiser considers various factors:

• Property’s location
• Comparable sales in the area aka neighborhood comps
• The age and condition of the home
• Size of the property
• Significant improvements such as additions or renovations.
• The total land area or square footage
• The presence of any lead paint, peeling paint, or asbestos in the popcorn ceiling
• The condition of the HVAC system
• Number of bedrooms, bathrooms, windows, and closets
• The garage space
• Whether the basem*nt is finished or not
• Built-in home appliance upgrades
• Presence of an in-ground swimming pool

After the appraiser checks the property, they’ll give it a rating such as “good,” “average,” “fair,” or “poor.”

Read more: Fair housing act of 1968

House appraised value vs. sales price: Do they match?

Home sellers usually want the appraisal value to match their asking price for a smooth real estate transaction. However, the value of a house determined by an appraisal might not be the same as what sellers are asking for.

Keep in mind that mortgage loan lenders use the appraisal value to decide how much they’ll lend to the potential home buyer for the purchase. In case the appraisal falls short vis-à-vis the selling price, it might make closing the deal difficult for both the buyer and seller. For instance, if the appraisal is lower, buyers may ask for a lower price or cancel the sale altogether.

Why do appraisals come in at sales price?

Appraisals often align closely with the sales price of a property due to a variety of factors. One significant reason is that real estate appraisers typically consider recent comparable sales in the same neighborhood or area when determining a property’s value.

If the sales price is in line with these comparable properties, it’s likely to be reflected in the appraisal. Moreover, sellers and buyers often use market research and real estate agent’s expertise to arrive at a reasonable listing and offer price. When both parties are well-informed about the local market, the sales price tends to be realistic, leading to an appraisal that mirrors this price point.

However, this alignment is not guaranteed, as appraisers also consider other variables such as property condition, unique features, and prevailing market trends to arrive at a final valuation.

What if the appraisal is higher than what you’re paying?

That’s actually a good thing! It means you’re buying the house for less than it’s really worth. Your mortgage doesn’t change because the price you’re paying stays the same, even though the appraisal is higher.

What if the house you’re buying is valued lower than its listing price?

If the appraisal shows the house is worth less than what you’re paying, it doesn’t mean you can’t get a loan. The lender will give you a loan based on the ratio of the loan amount to the home’s value. This is the loan-to-value (LTV) ratio.

The LTV ratio shows how much of the house’s cost your loan covers. For example, if the house is worth $150,000 and you’re buying it for the same price, with a down payment of $20,000, you calculate the LTV like this: Subtract the down payment ($20,000) from the price ($150,000), which equals $130,000. Divide the loan amount ($130,000) by the property’s value ($150,000), which is about 0.866. Multiply by 100 to get an LTV of 87%.

But what if the appraisal says the house is only worth $100,000? Since you agreed to pay $150,000, and the lender won’t lend more than the appraised value, you’ll need to cover the difference or talk to the seller about lowering the price to match the appraisal.

Read more: Average down payment on for first time buyer

What should you do if the appraisal value is less than the sale price?

Here are some tips for buying a home when the appraised value is lower than the selling price. These strategies can help you secure a favorable deal for your dream home.

Negotiate and navigate the homebuying process smartly

• A lower appraised value can be advantageous if the seller agrees to sell at a lower price.
• Assess the seller’s motivation through public records or property history.
• Sellers with fewer offers and urgent needs are more likely to negotiate.

Check the appraisal report and mortgage rates

• Request the appraisal report from the lender or appraiser.
• Review key areas such as square footage, adjustments, bedrooms, and comparables.
• Verify accuracy to spot discrepancies and red flags.
• Confirm mortgage interest rates for potential savings.

Read more: Home price to income ratio

Dispute the appraisal

• Appraisals are based on the appraisers and involve some subjectivity; disparities can arise between appraisers.
• Compare appraisals for significant differences.
• Scrutinize square footage, adjustments, bedroom count, and comparables.
• Seek a second opinion if doubts persist.

Resolve through contingencies

• Include and use the appraisal contingency clause in your purchase agreement.
• If the appraised value is lower and negotiations fail, you can walk away without penalties.

Consider paying out-of-pocket to make up the difference

• As a last resort, bridge the gap with cash or a private mortgage.
• Aim for added value by negotiating seller contributions, repairs, or updates.
• Hire an experienced real estate agent who can assist in maximizing your benefits.

Why do appraisals come in at sales price: FAQs

Can the seller change their mind if the appraised value is too high?

Whether the seller can cancel the deal depends on the contract terms. However, if the appraised value is much higher than the selling price, the seller might want to renegotiate.

Are low appraisals common?

Most appraisals match the sale price well. On average, appraisals are lower than the contract price only around 7% to 9% of the time.

Read more: Increase home appraisal value

Do sellers usually reduce their price if the appraisal is low?

Deciding to lower the purchase price depends on factors such as the seller’s motivation, urgency to sell the house, and competing offers.

Why does a house appraise for less?

Several factors can lead to a low appraisal, such as a slow housing market, very high home prices, bad or no comps, no home maintenance on the seller’s part, and if the house is a little too improved or expensive for the neighborhood.

Why do appraisals come in at sales price, or close to it? was last modified: May 6th, 2024 by Ramona Sinha