Appraisal Value vs. Asking Price

It is important to understand what a real estate appraisal actually means before using this information to influence a purchase. An appraisal is an estimation of a properties value in relation to other real estate in the area. It is primarily used by mortgage lending institutions to assure them that there is sufficient value in the property to cover the amount that a buyer will be borrowing.

A qualified appraiser will review a property and compare it to similar properties in and around the same area. The similarities will be things like square footage, number of bedrooms, bathrooms, etc. They will also take into account specific unique amenities that other similar homes may not have.

This is then compared to the actual sale prices of properties that are similar. It does not take into account the previous asking prices of those homes, just the price they sold for as recorded through the public registry office. This price data can often be a few weeks, to a couple months, out of date. Depending on current market conditions prices may have moved more or less than than an appraisal can actually estimate.

Appraisal Prices are Often Lower than Asking Prices or Selling Prices

Many people are surprised when appraisals come in lower than expected. Don't be surprised, they often do. This is largely due to the time lag from comparable price data used in the calculation, as stated above. Remember, it is only an estimation.

Most often it is the bank that requests an appraisal. And the appraisal value is suited to their needs, not the buyer or seller. The bank needs to be sure that the amount being borrowed can be covered by the value in the property. Appraisal values slightly lower than market values can be seen as an ere on the side of caution.

It is also in the best interest of the appraiser that appraised prices are below market value and not above market value. If appraisals are too high banks may be carrying more unwanted risk, buyers can be deceived, or sellers stuck with properties nobody wants to buy (at those prices). But beware that appraisers can sometimes be pressured by agents to make a high appraisal to ensure that a deal goes through.

Market forces will determine the actual value of any property. The amount that a buyer is willing to pay is the true reflection of the value of real estate. An appraisal is, after all, only an appraisal.

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