Sales Price vs. Appraised Value

The Ransom-McKenzie Team is often contacted by sellers who are interested in determining the value of their home.  In many instances, they already have a number in mind, they are just looking for us to validate their price.  Sometimes we come in with a price at or close to what the seller’s believe to be the value of their home….. other times we don’t.  When you are listing your home for sale, choosing the right listing price is an important part of the process for a number of reasons. The most important of those reasons is to make sure that your sales price is going to match the appraiser’s valuation of the home.

The Sales Price

Of course, most sellers want to maximize the value they get for the house. However, the price they set might not be reflective of the other comparable homes in the neighborhood. A recent post on “The Home Story”, a site published by Fannie Mae, explained the difference between the price a seller may get for their home and the value an appraiser might assign the property. The article starts out by stating a fact which is all too familiar to Realtors:

“People tend to view their homes emotionally, and that can become quickly apparent when they decide to sell.”


Nice presentation can positively affect a sale price, but is not the only deciding factor.

That doesn’t mean that the home won’t necessarily sell for that price. A seller can set an asking price and actually have a buyer agree to that price. However, that value may not be necessarily in agreement with what most buyers are willing to pay. For example, one person can view a property, determine it is exactly what they are looking for and well worth the asking price, whereas another person could look at the same property and feel the asking price is too high. Steven Corbin, Director of Valuation in Fannie Mae’s CPM Real Estate division gives an example of this scenario:

“Someone may have driven by the property countless times, and they really want to live in that house. So in reality they may overbid for that property. This would be a situation where the actions of a specific buyer do not represent the actions of a typical buyer.”

The Appraised Price (Market Value)

In their article Fannie Mae describes the process used to determine the value of a home to satisfy their determination of value:

“When a contract is established on a property, an appraised value is determined by a professional real estate appraiser. The appraiser works on the lender’s behalf to determine that value by taking many factors into consideration, including the neighborhood, the value of properties of similar size and construction, and even such things as the type of fixtures on the premises and layout of the floor plan.”

The bank, or lender, wants to know the value that a typical buyer would pay for the property. This price may differ from the agreed upon sales price that the seller and buyer had in the contract.

Selling Your Home Twice

The fact is, when you’re selling your home, you actually have to sell it twice.  The first sale occurs when you get the right buyer and  all parties agree upon a price. The second sale, which often is the more challenging of the two, is to get the bank, (aka the appraiser), to agree to the same value.  If the appraiser comes in with a value that is below the agreed upon sales price, the lending institution might not authorize the mortgage for the full amount a buyer would need to complete the transaction. Quicken Loans actually releases a Home Price Perception Index (HPPI) that quantifies the difference between what sellers and appraisers believe regarding value. The HPPI represents the difference between appraisers’ and homeowners’ opinions of home values. Currently, there is approximately a 2% difference between what homeowners believe their home to be worth and what appraisers value that same home. On a $300,000 sale that would be a $6,000 difference. That could be a challenge that might prevent the home sale proceeding to the closing table.

Bottom Line

In a housing market like the one we’re experiencing in the City of Riverside right now, where supply is very low and demand is very high, home values can increase rapidly. One major challenge in such a market is the bank appraisal. If prices are jumping, it is difficult for appraisers to find adequate comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank. With escalating prices, the second sale might be even more difficult than the first. That is why we suggest that you use an experienced real estate professional to help set your listing price.  Call the Ransom-McKenzie Team today to discuss the value of your home. We’ll be happy to assist you with every step of your real estate transaction.

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