What is the difference between the Listing Price and Appraisal?

When it comes to real estate, there must be a meeting of the minds for a property sale to take place. The value a buyer applies to a property can vastly differ from the value a seller or lender places upon it. The seller, the buyer and the lender must find an agreeable value to attach to a property so the sale can proceed. This can be accomplished only when the listing price and the appraised value are as close to each other as possible.

Listing Prices:

Listing prices are influenced by the real estate agent, and set by interested and often emotional sellers.

Sellers are not held by any rules when they list a home. In some cases, sellers take what they paid for the house, add what they have spent on improvements and even add amount for profit.

Often times, sellers will list their home based on the amount needed to pay for the real estate agent, closing costs and cover the amount of the mortgages.

Extra low prices are generally the result of an extra motivated seller that has to sell and move in a rush, so they’ll list their property below market comps in order to be the most competitive.

Appraised Value

          When a potential buyer goes to a lender to get a mortgage for property, the lender will take several factors into consideration when determining the property’s value. Appraisals are meant to be realistic determination of the value of a home if it were to sell in the current market, in its current condition.

The property’s neighborhood, the value of properties of similar size and construction, even such things as the type of fixtures on the premises and layout of the parking lot are considered when determining the appraised value of the property. Appraisers are also asked to look only at the comparable sales within a certain distance, usually one mile except in rural areas, and within a specified period of time, which is 3-6 months in the current market. This is the value on which a lender will determine whether to proceed with evaluating overall creditworthiness of the potential buyer.

Warning

A large gap between the appraised value and the asking price can be a problem for the buyer. If the lender thinks the appraised value of the property is not enough to cover the requested mortgage, the lender could require a larger down payment, which can be problematic for a buyer because it could require additional funds of several thousand dollars.

The Verdict:

While list price is never a good indication of what a home in your neighborhood is worth, appraisals are not an exact science that will determine the true value of your home either.

Some will argue that a home is worth what people will pay for it, so there’s obviously a little room for personal interpretation.  Either way, the bank securing that piece of real estate for a mortgage loan generally always has the final opinion that matters the most.

NuHome Group 713-373-0345

1445 North Loop West Suite 105 Houston, TX 77008

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