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The Appraisal Process

When buying or selling real estate, it is important to understand the appraisal process, valuation and how they relate to the current market. Some times the value of at property will equal its appraisal but this more a rarity than a commonality. Appraising a property is a process in which a certified appraiser determines the value of a property based upon strict criteria and variable factors such as subdivision amenities.

Value is placed on things like bedrooms, bathrooms, square footage and any extras a property may have, a pool or great room for example. There are many different ways a property can be appraised, but the most common is the comparable method. Properties that have sold, that are similar to the ‘subject’ property, are used to ‘compare’ value based on those factors I mentioned earlier. This appraised value is then used by lenders to determine maximum loan amounts.

Value of a property is determined by what the general public is willing to pay for the property. It can be more than the appraised value or less. The problem when selling a property for more than the appraised value is that the buyer will have to come out of pocket with the difference. For example, if a property is sold for $525,000 and it’s appraisal came in at $500,000, the $25,000 difference would have to be paid at closing in addition to any closing costs and down payment.

 A buyer with limited funds would have a tough time buying this property. However in an all cash deal, this would be a mute point. Another thing to consider is resale. If you buy a property above its appraised value, you might have a difficult time selling it later on if the purchase price hasn’t equaled its value over time. Buying or selling a property below appraised value is probably the most common occurrence. This is because of the perception of a ‘good deal’ that makes a property more marketable. No one likes to pass up a good deal. It’s also a more attractive risk to the lender, thus making it easier to finance. Imagine the feeling the buyer gets when the lender calls to tell them that the property they just purchased appraised for more than what they paid.

Nothing affects appraisals or value more than the market conditions. During a strong market, buyers often find it difficult to purchase a property below appraisal. Inversely sellers have to become more flexible and creative to market their property during a slower market. Before buying or selling a home you should know what the market conditions are so you know what to expect. Interestingly enough during slow markets more people seek out Realtors to help in the sale of their homes.

During stronger markets they elect to try selling the homes themselves first, before seeking assistance. A point to consider, a study from the National Association of Realtors. stated that ‘for sale by owners’ sold their homes for less money than when they listed it with a Realtor. Why? Because even though they may have valued their home correctly, the buyers know the sellers are not paying a Realtor commission so they figure they can discount the price by that amount and get a better deal. The seller winds up doing one of four things: sells for less money, doesn’t budge on price and the house sits on the market, pulls the house from the market or yep you guessed it, they list it with a Realtor.

 I have always told family and friends you should always try selling your home by yourself first, before listing it with a Realtor. I would give it 2 to 4 weeks, unless you really need it sold then contact a Realtor right away. You might be asking, why is a Realtor telling me to try to sell it myself? The answer is twofold. First, you might find someone who is willing, able and qualified to buy your home. Secondly the study from the National Association of Realtors also said that close to 80% of all ‘for sale by owners’ eventually listed their home with a Realtor.

Knowing this, I am taking a risk that you would appreciate my honesty and I would be at the top of your list when you consider hiring a Realtor from the thousands that are out there.

Call me if you have questions at 845 598 5083 or email me at

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