Some of the most common conversations I have been having with mortgage customers are those concerned with how much value they will get from the home appraisal. These calls come from customers who want to get a cash-out to refinance and remodel the home where they live. We get calls from customers competing with multiple other offers to buy a home. They want to know, “How much higher than the asking price should I offer for this home? Do you think it will appraise for that much?”
Prices of homes are continuing to rise. The median home price of $329,100 is up this week 17% year-over-year. Mortgage rates are lower than they have been in seven weeks. Prices on homes are being pushed up by high demand from aspiring home buyers competing to buy and lock low fixed rates. The forecast is for home prices to rise and for mortgage rates to stay reasonably low into the following year.
Longer range predictions are for demand to remain high for real estate for years to come. This forecast is based on the emerging households coming from the aging Millennial generation and the Z Generation. These generations will continue to need more housing because they are starting new households and expanding the size of their families. They will continue to need housing to meet those needs.
If you want to do your homework to estimate the highest value you can get on an appraisal for refinancing your home or the highest value you should pay over the list price to buy a home, here are some tools available for you to use.
1. Connect with an experienced realtor who sells homes in the neighborhood that interests you. A realtor can show you details on homes selling recently in your area.
2. Check with your city newspaper for detailed data for your targeted area to help you estimate the value of your home. These reports can give you the information you need to make an educated guess for a small fee.
3. Appraisers can do a private appraisal for you, but you would not be able to use their review for mortgage purposes.
When a lender gets an appraisal, they require the appraiser to use “bracketing” when choosing comparable sales to determine the home’s value. Bracketing requires the appraiser to pick at least one home inside your neighborhood and at least one comparable sale outside your neighborhood. The appraiser must choose at least one comparable home sale with a value lower than your target home and one comparable sale with a value higher than your target home. You can’t always depend on the appraiser to use the house across the street that sold a few weeks ago to get to the value of your home.
Real estate professionals who can analyze a home appraisal bring massive value to the real estate transaction and their customers. Randy the Realtor sold his listing to a buyer for about $250,000 in a neighborhood where most homeowners had upgraded their houses. Randy's seller on the property had listed for sale had upgraded his home with granite countertops, hardwood floors, and updated plumbing fixtures. The appraisal came in $10,000 lower than the sales price.
Randy the Realtor put on his sleuthing cap and started researching the homes the appraiser used as comparable sales. Randy found that the appraiser had used homes that had not been updated. By pointing this out to the appraiser, Randy could get the appraisal value on his listed home increased by $8,000.
It pays to know your way around the neighborhood. It pays to know your way around a real estate appraisal.
