What’s that $1 million house really worth? Depends who you ask.
To determine the value of a property, appraisers are supposed to review purchase prices of similar, nearby homes that sold in the past six months. But when a property is much pricier than others in the neighborhood, it can be hard to find similar examples close by. As a result, their asking prices are often out of whack with values that are later determined by appraisals. To find relevant numbers, appraisers in many cases have been digging up older sales as far back as five years ago, consulting current listing prices that might not reflect what buyers are actually paying for a property and even looking at sales prices in other markets.
As a buyer and/or seller, there are steps you can take to protect yourself from a surprise appraisal:
- Buyers, add a contingency clause in the contract: include a statement in the contract that guarantees the buyer will receive the initial down payment back if the appraisal value is below the offer. That also leaves open the option of renegotiating or walking away from the deal without losing those funds.
- Sellers, research county records: Counties assess home values to help determine the property taxes a homeowner will pay. Appraisers take that assessment into account while determining a valuation for the home.
- Sellers, consider cost vs. value: the money owners pump into their homes in upgrades won’t always be reflected in the appraisal value. Upgrades that are highly customized could lower a property’s value.
By AnnaMaria Andriotis, The Wall Street Journal