Contrary to popular belief appraising real estate is not rocket science. 

However, a good appraisal requires both knowledge and time to prepare.  “Will it appraise” is a good question in Cincinnati’s overheated/overpriced real estate market.   

The sole purpose of the appraisal is to make sure that the amount being borrowed doesn’t exceed the value of the home. The lender is using the house as collateral for the loan and they want to protect “their” investment.

Houses don’t always appraise for the contracted amount. Bidding wars often end up with selling prices significantly higher than asking prices.  And it’s up to appraisers to sort out whether the buyer’s offer can be financed.  Remember if the house doesn’t appraise buyers may have to come up with more money and/or the sellers might reduce the sale price.  Or both parties can agree in writing to terminate the contract and move on.

Types of Appraisals

The most common type of appraisal is ordered by the lender after the contract is negotiated. The appraiser makes an appointment to visit the property and inspects both the inside and outside.  The next most common is an exterior only- known as a “drive-by appraisal”.

Drive-by appraisals are more common when the appraiser is very familiar with the area (and maybe the property type) and the amount of money being borrowed isn’t the same as the purchase price.

Appraisers must use “comps” to justify a price.  Comps are comprised of recent sales in subdivision or area that closely match the property. Many listing agents will leave detailed information on “comps” on the kitchen counter.  Most appraisers already know the details but will sometime not have the details about a particular sale.   There are houses that are hard to appraise because it is hard to find comps. Then the appraiser compares properties and makes adjustments. 

Some sellers waste money and pay for an appraisal before their house is put on the market.  The only appraisal that counts is the one ordered by the lender (or buyer paying cash for a house).

Don’t confuse appraisal values with other valuations

There is so much information out there today it’s easy to get confused.  The only value the lender is concerned about is the “appraised value”.  You’ll other phrases thrown around and maybe understanding what they mean will help both buyers and sellers:

Fair market value– The fair market value of a home is the most competitive price a buyer is willing to pay and the lowest price a seller would be prepared to accept. End of discussion.   Theoretically speaking, the appraised value and fair market value should be similar (but no guarantee).

Assessed value– The assessed value is what the local tax assessor feels your property is worth. Most people think there is a correlation between assessed and market value but there really isn’t  Assessed home values are just a measurement tool to calculate property taxes.

Appraised value– An appraised value is the opinion of a qualified appraiser. The appraised value comes into play during a purchase of a property or a when existing homeowners decide to refinance. Remember, lenders use appraised value as a basis for giving borrowers a loan on a specific property.

 Zestimate – A Zestimate is a Zillow online valuation tool. Zestimate is probably the best known of the many online valuation tools. Zestimates are fun but probably the least accurate way to evaluate market value.  Zestimates can be off by thousands of dollars -in either direction.  For example, in new subdivisions sale prices for lots are compared to sale prices of completed homes.  Or the Zestimate is missing information about additions and improvements.  Both buyers and sellers often misunderstand and misuse the Zestimate data. It’s a nice to know but often not an accurate property valuation.

Will it appraise?

The vital link to a successful sale and closing on your property is an appraisal.  Pricing your home or condo to not only sell but also appraise is critical.