After five years of declining home values, prices on Cape Cod are up, way up. So far this year, prices are running approximately nine percent higher than this time last year.
This is great news for home sellers unless their home does not appraise at the price the home buyer is now willing to pay.
In this hot real estate market, some homes face a bidding war with more than one buyer submitting a purchase offer. When one buyer offers more than the listing price, there is a chance the lender will think the home isn't worth it, and the loan won't go through. Here are five points to keep in mind about home appraisals.
1. An appraisal isn't an exact science. When appraisers evaluate a home’s value, they’re giving their best opinion based on how the home’s features stack up against those of similar homes recently sold nearby. One appraiser may factor in a recent sale, but another may consider that sale too long ago, or the home too different, or too far away to be a fair comparison. The result can be differences in the values two separate appraisers set for your home.
2. Appraisals have different purposes. An appraisal being used to figure out how much to insure your home for or to determine your property taxes may rely on other factors and arrive at different values. For example, though an appraisal for a home loan evaluates today’s market value, an appraisal for insurance purposes calculates what it would cost to rebuild your home at today’s building material and labor rates, which can result in two different numbers.
Appraisals are also different from CMAs, or competitive market analyses. In a CMA, a real estate agent relies on market expertise to estimate how much your home will sell for in a specific time period. The price your home will sell for in 30 days may be different than the price your home will sell for in 120 days. Because real estate agents don’t follow the rules appraisers do, there can be variations between CMAs and appraisals on the same home.
3. An appraisal is a snapshot. Home prices shift, and appraised values will shift with those market changes. Your home may be appraised at $350,000 today, but in two months when you refinance or list it for sale, the appraised value could be lower or higher depending on how your market has performed.
4. Appraisals don’t factor in your personal issues. You may have a reason you must sell immediately, such as a job loss or transfer, which can affect the amount of money you’ll accept to complete the transaction in your time frame. An appraisal doesn't consider those personal factors.
5. You can ask for a second opinion. If your home appraisal comes back at a value you believe is too low, you can request that a second appraisal be performed by a different appraiser. You, or potential buyers--if they have requested the appraisal, will have to pay for the second appraisal. But it may be worth it to keep the sale from collapsing from a faulty appraisal. On the other hand, the appraisal may be accurate, and it may be a sign that you need to adjust your pricing or the size of the loan you’re refinancing.