Why Appraisals Usually Match the Contract Price When It's Within the Value Range

When buying or selling a property, a professional appraisal is essential to determine the fair market value of the property. The final result of this appraisal process is the appraisal opinion of value, which plays a significant role in the transaction. However, some people wonder why the appraisal opinion of value often matches the contract price if it falls within the appraiser's determined value range. In this blog, we'll explore the reasons behind this and debunk the realtor opinion that giving the appraiser the contract is "cheating."

Understanding the Appraisal Process

The appraisal process involves a thorough analysis of the property, including its location, size, condition, and other relevant factors. The appraiser also examines recent comparable sales in the area to determine the fair market value of the property.

The Role of the Contract Price

The contract price is the price agreed upon by the buyer and seller in the purchase contract. If the contract price falls within the appraiser's determined value range, it's usually accepted as the appraisal opinion of value. This is because the contract price represents the fair market value of the property as agreed upon by both parties in the transaction.

The Importance of Market Value

Market value is the price that a willing buyer and seller would agree upon in an open and competitive market. The appraisal opinion of value should reflect this market value, and the contract price is a strong indicator of it. If the contract price falls within the value range, it's a clear indication that the property was sold at market value.

Debunking the Realtor Opinion

Some realtors believe that giving the appraiser the contract is "cheating" because it may influence the appraiser to match the contract price. However, this is not true. The contract price is just one of many factors that the appraiser considers in determining the fair market value of the property. If the appraiser determines that the contract price is too high or too low, they will adjust the appraisal opinion of value accordingly. Appraisers are also bound by professional ethics and standards that require them to be impartial and objective in their analysis.

 Exceptions to the Rule

Although the appraisal opinion of value usually matches the contract price when it falls within the value range, there are exceptions to this rule. If the appraiser discovers new information or evidence that affects the property value, they may adjust the appraisal opinion of value accordingly. Additionally, if the contract price is significantly higher or lower than the value range, the appraiser may question its validity and conduct further analysis.

In conclusion, the appraisal opinion of value usually matches the contract price when it falls within the value range because it represents the fair market value of the property as agreed upon by both parties in the transaction. The contract price is a strong indicator of market value, which is the ultimate goal of the appraisal process. Giving the appraiser the contract is not "cheating" and is a common practice in the industry. However, there are exceptions to this rule, and the appraiser may adjust the appraisal opinion of value if new information or evidence arises.

Why Contract Price Isn't Market Value: Debunking the Myth for Realtors and Homebuyers

As a real estate appraiser, I often hear people say that if someone is willing to pay a certain price for a property, that's its market value. However, this is not necessarily true. Market value is the most probable price that a property should sell for in a competitive market, with both buyers and sellers acting prudently and knowledgeably, and no undue influence on the price.

When someone buys a property with a mortgage, the lender will require an appraisal to determine the market value of the property. This is to make sure that the property is worth the amount of the loan. If the appraised value is lower than the contract price, the buyer may need to come up with additional cash.

It's important to understand that an appraisal is an independent and unbiased opinion of the market value of a property. The appraiser considers many factors, such as recent sales of comparable properties, the condition and features of the property, and any market trends or conditions that may affect value. While the contract price may be one factor, it's not the only thing appraisers consider.

For example, let's say a house is listed for $500,000, and a buyer agrees to pay the full asking price. However, the appraiser determines that the market value of the property is only $450,000. In this case, the lender may only be willing to provide a mortgage for $450,000, and the buyer would need to come up with the additional $50,000 in cash.

In another example, a buyer agrees to purchase a property for $400,000, but the appraiser determines that the market value is actually $425,000. In this case, the lender would be willing to provide a mortgage for the full amount of the purchase price, but the buyer may be overpaying for the property.

In conclusion, the contract price of a property is not the same thing as its market value. Appraisers provide an objective opinion of market value based on many factors, not just the contract price. It's important to understand this distinction when buying or selling real estate.

If you're a realtor or homebuyer, it's important to work with an experienced appraiser who can provide an accurate assessment of the market value of a property. For more information on real estate appraisals and market value, check out the Appraisal Institute or the National Association of Realtors.

Understanding Actual Age vs. Effective Age in Property Appraisals: What You Need to Know

As an appraiser, one of my main jobs is to figure out how much a property is worth. When I'm doing this, I have to think about a lot of different things, like where the property is, how big it is, what condition it's in, and how old it is. When it comes to age, there are two different ways we talk about it in appraisals: actual age and effective age.

Actual age is just how many years it's been since the property was built. This is based on official documents, like building permits, that tell us when the property was constructed. Effective age is a little different. It's more about how the property looks and works right now, and is based on things like how well it's been maintained and whether it's been updated or renovated over the years.

For example, a property that was built 50 years ago might have an actual age of 50, but if it's been taken care of really well and looks like it's in great condition, we might say its effective age is lower. On the other hand, a property that was built only 10 years ago might have a higher effective age if it hasn't been taken care of very well and looks like it's been around longer.

To figure out the effective age of a property, I look at things like the condition of the roof, siding, and other outside parts of the property, as well as the condition of the floors, walls, and appliances inside. I also think about any updates or renovations that have been done to the property, because those can make it feel newer even if it's actually been around for a while.

The effective age of a property matters because it can affect how much it's worth. A property that's in really good shape and has a low effective age is probably worth more than a similar property that's in worse condition and has a higher effective age. That's because people are usually willing to pay more for a property that's going to last longer and need less work.

So, as an appraiser, it's really important for me to understand the difference between actual age and effective age. By thinking about both of these things, I can give an accurate estimate of how much a property is worth, and help people make informed decisions about buying and selling real estate.

Top Factors Homeowners Should Know for a Successful Property Appraisal

As a real estate appraiser, my job is to determine the value of a property. This is an important task, as the value of a property can have a significant impact on a homeowner's financial situation. If you are preparing for an appraisal, it can be helpful to know what an appraiser is looking for when they visit your property.

First and foremost, an appraiser will be looking at the size and condition of your property. This includes not only the size of the house and the lot, but also the overall condition of the property. The appraiser will be looking for any signs of wear and tear, such as cracked walls or leaky roofs, as well as any recent upgrades or renovations.

In addition to the physical condition of the property, an appraiser will also be looking at the neighborhood and the surrounding area. This includes factors such as the crime rate, the quality of the local schools, and the overall desirability of the area. All of these factors can have a significant impact on the value of your property.

Another important factor that an appraiser will consider is the recent sales of similar properties in the area. This is known as "comparable sales" or "comps" for short. By looking at the sales prices of similar properties in the area, the appraiser can get a better sense of what your property is worth.

Finally, an appraiser will also be looking at any unique features or amenities that your property may have. This could include things like a swimming pool, a large backyard, or a beautiful view. These features can add significant value to a property and can help to set it apart from other properties in the area.

Overall, there are many factors that an appraiser will consider when determining the value of your property. By understanding what an appraiser is looking for, you can better prepare for your appraisal and ensure that you are getting a fair and accurate assessment of your property's value.