Appraisals are a hot topic in our market right now, because we’re seeing a disparity between contract agreements and appraised values. This affects both buyers and sellers.
Appraisals are a very hot topic in the world of real estate right now. Most would say that our market is a seller’s market right now, and appraisals are coming in a little bit lower than purchase contract prices.
Appraisals are a report generated by a licensed appraiser using the comparative sales approach; they take properties that have sold around you, compare it to yours, and make value adjustments based on things like size, upgrades, and garage size. They come up with an overall value, or the appraised value.
We’re seeing appraisals come in lower than the contract agreement, especially in the luxury price points.
Right now, appraisals are coming in lower than the prices that buyers are willing to pay. Buyers purchasing a home with a loan can’t get the loan for any more than what the appraised value is, and that creates some complications. Say for example’s sake, a buyer offers $500,00 for a home, but the appraiser values it at $475,000. When this happens, a few things can take place to make sure the deal continues:
- The seller can reduce the price. By lowering the price to the appraised value, the buyer will be able to obtain their home loan and purchase the house.
- The buyer can come up with the difference in cash. If they see the value in the home, they can make up the difference between the appraised value and the contract price in cash if they’re able.
- Both parties renegotiate and come to a compromise. The buyer and seller can meet somewhere in the middle, like the seller coming down $10,000 in price, and the buyer agrees to pay $15,000 more in cash.
- The buyer can back out of the deal. Since most deals with financing are contingent upon an appraiser, the buyer will almost always have the option to back out of the deal with no penalty.
In the higher price points in the luxury market, what I often see is a more of a disparity between the appraised value and the purchase agreement. This happens because there are a lot more things to assess in a luxury property, like high-end materials or a premium view of the mountains. I’d say appraisals are a little bit more insignificant in that price point because the appraisal is solely an opinion of value. We tend to lean more toward the market value that a buyer is willing to pay at a given point in time.
Another thing I’m commonly asked about is buyers and sellers looking at Zillow’s Zestimates and seeing that they’re far off from the appraisal. What you need to know is that the Zestimate is an automated value model (AVM) that is a computer-generated number. Most of the time, it doesn’t take improvements or upgrades to the property into account.
It’s not the same as an appraisal, so I wouldn’t recommend going off of that number if you’re thinking about selling your home. There could be a lot more value in your home than what the Zestimate says. Similarly, if you’re thinking about buying a house, rather than forming your opinion of the price on the Zestimate, align yourself with a great real estate professional who can tell you what the home is worth.
If you have any questions about appraisals and home values, or you’re wondering about anything in the Las Vegas real estate market in general, give me a call or send me an email. I’d be happy to answer your questions.