If you are a home buyer one of the final hurdles to the closing will be the appraisal. The appraisal and is only for the bank to underwrite the loan and to verify that the value of the home is appropriate for the loan being requested. The bank appraisal isn’t what the home is truly worth on the open market. If a home appraises for more or for less it doesn’t mean the home is worth more or less. Here is why.
An appraiser determines value by analyzing past sold transactions and extrapolate that information to determine a value. In a normal residential real estate transaction the value is determined by more dynamic factors than just past transactions. You also have to factor in the motivation of the buyer and seller plus the supply and demand for homes currently on the market. These other items are very dynamic and can change day to day. But they aren’t being factored in by the appraiser.
For example: If a home is appraised at $300,000 and is listed when there are no other active listings in the neighborhood it will likely bring a higher price than it’s appraised value. If the same home is listed when there are 5 other homes for sale on the block the value will be less. Don’t underestimate how much motivation of the buyer or seller can impact the value. I have a seller that had an offer for $192,000 on their home and turned it down because the listing was new and they hadn’t closed on their new home yet. A few months later they had already purchased a home and now accepted a contract at $189,000. Same home, same appraised value but increased motivation changed the market value.
Sometimes a home can simply be hard to appraise because of the lack of comparable sales so they may take a more conservative approach. This doesn’t mean the value isn’t there, it just means it’s hard to appraise.