Sales Price vs Appraised Value

Before you can close on a property, the seller, buyer, and lender must agree on a value, which can happen more easily if sale price and appraised value are very close.

Sellers tend to view their homes emotionally, and that can become quickly apparent when they put them on the market. They may price the home too high, causing it to languish on the market. Or they may set the asking price too low.

What Is Sale Price?

Pricing a home can be a “delicate balance”. “You have to balance the comparables with sellers’ unrealistic expectations about what their home is really worth.

Sellers often want to price a home higher than what the market can bear. “On the other hand, some sellers or agents may be tempted to set the asking price low in the hopes of generating a buyer frenzy and quick sale”.

He adds: “From a lending perspective, a bank would want to know the probable price a typical buyer would offer for the property. That’s what an appraiser would set as the market value.”

What Is Appraised Value?

When a contract is established on a property, an appraised value is determined by a professional real estate appraiser. The appraiser works on the lender’s behalf to determine that value by taking many factors into consideration, and the buyers behlf to be sure they aren’t overpaying.

Setting an appraised value for a home can be tricky. Even when properties are just blocks apart, their values can differ greatly. One could be closer to public transit or in a different school district, for example. A professional appraiser will take all that, and more, into account.

Why Do All These Prices Matter?

A large gap between the appraised value and the asking price can be a problem for the seller. For example, notes Corbin, a seller might list a property for $750,000, but if buyers are only willing to pay $700,000, then the market value is $700,000. Conversely, if a property listed at $750,000 has several buyers interested, the market value can meet or exceed the listed price based off of the market demand.

In the end, all parties must agree to the terms of the sales contract based off of the home’s appraised value. Sometimes the buyer is willing to pay more by coming up with the difference in additional down payment. Other times, the seller may agree to reduce the price to meet the appraised value.  It’s all a negotiation, which is where having an exceptional real estate agent is of critical importance.

 

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