Appraisals-What do they mean?

appraisal-blog With record low interest rates, many home owners are taking advantage of refinancing right now. Depending on how long an owner plans on staying in the home, and how long the cost of refinancing takes to pay off, it could be a smart way to save a substantial amount of money.

What is not a good idea, is mixing up the amount an appraiser arrives at as a value for your home for the purpose of refinancing, with what your home may actually sell for on today's market. It is rarely the same number, often far from it. Appraisers have a different job than Realtors. They are contracted by the lender to assess the value in terms of refinance, purchase, for an estate, etc. Often the comparable properties appraisers use for these purposes are drawn from further afield than a Realtor would use. They employ numbers to assign value or take away value depending on the amenities. Example, minus 20,000 for no basement, or plus 20,000 for 600 more square feet than the subject property.

This is not how competent Realtors assign a market range. Our job is to represent a client in selling a property. I often go into neighboring properties for sale- see which have hardwoods and which have carpet.  Knowing the neighborhoods intimately, one knows which streets are busier, more sought after. In some neighborhoods, the difference of a block or two can mean $100,000 more or less in value. Working with buyers, I know what they assign more value to, and are willing to pay for. I don't look at "comparable" properties, I'm looking at "competing" properties.

Another tool I use is "absorbtion rate." By zip code, or neighborhood, I calculate at what rate the existing inventory of  available homes has been selling. This is an invaluable tool and allows one to determine where the property should be positioned in a very specific market.

The (true) cautionary tales are these. Owner Smith gets an appraisal for $525,000 for her home. She refinances and decides to take out $20,000 in equity for home projects. Smith loses her job and needs to sell. Her actual market value is $475,000. This owner now has a serious problem. Owner Jones gets an appraisal and refinances. His appraisal was $550,000. He decides to sell six months later, and wants to sell it at the appraised price. In the meantime, the market is declining. By the time he lists it at actual market price- several months later, opportunity and profit are lost.

No disservice to appraisers out there. I respect the work they do and they perform a valuable service. 

Let's just be clear that appraisers and Realtors have different jobs. When positioning your home for sale at today's market price, a savvy and honest Realtors assessment is what matters.