Why Isn't My House Selling For What It's Appraised For?

Ilyce R. Glink of Inman News recently tackled a seller's question regarding the differences between appraised and market values. Click here for full article.

Q: I tried to sell a house for the appraised price and was unable to sell at that price. I understand that property will not sell when it is priced too high but the offers I received were $5,000 to $8,000 less than the appraisal. I was under the impression that if I advertised the property for the appraised price, it would move quickly. I told one real estate agent when she made me an offer from a client that I was going to have the house appraised again and that I would provide the appraised price to the potential buyer so he could adjust his bid. The agent didn't go for that at all. Can you give me some suggestions as to what I did wrong? When I couldn't sell the house, I finally rented it.

Ms. Glick responded: "I think you made a few basic mistakes. First, the appraised value is not necessarily the same thing as the market value. The appraised value of the home is what an appraiser thinks the home is worth based on the sales of other similar homes in the area. The market value is what someone will actually pay for the house. " It's true that an appraised value may not be the same thing as market value, but not for the reason that Ms. Glick implies above. There are different types of appraisals, such as a "quick sale value," "as-is condition," "future renovated valuation," "employee relocation," and many others. Ms. Glick says: "The market value is what someone will actually pay for the house." If she is correct , when a buyer under-pays or over-pays for a house, that must be market value? I don't think so! Price may not equate to Value. An everyday example of this is shopping for Levi's online, or a discount store, or a department store (market). The price for the identical product may vary from $12.00 to $20.00 but the value of the jeans will remain the same. If there were "Levi Appraisers" they would report the most probable value that a knowledgeable buyer would be willing to pay. Ms. Glick concludes: "In your case, either because of the condition or location of the home, the market is telling you that your home isn't worth what the appraiser thinks it should be worth--it's worth $5,000 to $8,000 less. Getting a new appraisal doesn't change what someone will pay for the home. You'd be better off buying some cans of white paint and repainting the interior of the property. Then, you might get more money for it." The author has jumped to the conclusion that the appraiser has "over-valued" the property because he or she did not correctly adjust for adverse condition or location factors. While that is possible, there's no evidence to support that conclusion. What are some reasons a property may not sell for the appraised value?

• The Intended Use of the appraisal has changed. It's possible that the owner is using an appraisal optained for a cash-out refinance. NOW she wants to use for as a pre-listing guide. There is almost always a range of reasonable values for any property. The upper-end of the value range may have been appropriate of the original use (refinance) but it may not be appropriate to then use it to support a negotiated sale price.
• The market has changed. Have interest rates gone up? Seasonal demand changed? Appraisals are a snapshot in time.
• Inadequate marketing efforts or unrealistic marketing timeframe. Appraisals assume that the property will be exposed to the open market for a reasonable period of time. If the seller was expecting a "quick turn", and the appraiser was unaware of of this, they may not have properly discounted the prevailing market values.
• Value Point vs Range of Value. In lending work its SOP (Standard Operating Procedure) to reconcile the indicated market value range to a single "value point". For pre-listing assignments I feel that it is more appropriate to express the market value as a "range of value". Real Estate Appraisers are about the only class of appraisers where a point value is expected. In fact, there is NO single market value point for a given property. Don't believe me? Put your property up for sale and see how many different opinions you'll get from appraisers, sales agents, family members, friends, and potential buyers. Then run an Internet on-line home value (AVM) product.
• Opinion or Fact? An appraisal, simply stated, is an opinion of value supported by adjusted market sales. As mentioned above, there is no "single" market value. Professional appraisers strive for a 5% margin of error when comparing appraised values and ultimate sales prices. If a home is appraised for $100,000 and utimately sells for $95,000 to $105,000 ($10,000 spread) the appraiser has met industry standards and outperformed the best of the online valuation products.

Original Article: "Seller learns difference between appraised and market value" - Thursday, May 25, 2006 By Ilyce R. Glink

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