Market Value vs. Appraised Value
June 19, 2008 by Carl Chapman
Filed under Arizona
Market Value vs. Appraised Value
Currently in Arizona, we are seeing many homes selling for less than their last appraised value. This is very common in today’s Arizona’s real estate market because of the glut of bank owned homes and there are too few buyers. Homes are receiving multiple low offers with purchase prices well below the last appraised value. In some cases, a great property will receive a bid that is above market. Can the buyer still get the home?
Appraisals are done for the lenders, not the buyers or the sellers. The lenders have appraisals completed to protect themselves. Once the loan is made the property becomes collateral for the loan. Appraised values are based on recently sold comparable sales. Lenders are not interested in what a buyer is willing to pay for the property. Lenders want to know if the buyer defaults on their mortgage will the lender’s investment be protected.
As a buyer, if you are willing to pay the market value, you should be aware that lenders are going to lend on either the appraised value or the purchase price whichever is less. If a buyer offers more than the appraised value, the difference in price will have to come from the buyer’s pockets. Buyers need to make sure they have enough to cover the closing costs, down payment, and the difference between the market value and the appraised value of the property.
As a seller, when accepting high offers, it is important to make sure the buyer has enough additional cash available to make a larger down payment, if it is required. The seller should be sure that the buyer is aware that there is a possibility that the property may appraise low. Sellers don’twant to have to renegotiate the purchase price half way through escrow and risk having to re-list the property.
Just know the market that you are in. This is it a down market, with too many homes available and with plenty of good inventory. Remember the true value of a home is what you are willing to pay for it and what the bank will loan you.
I recently tried to purchase my first home. It was a short sale in Surprise. My short sale addendum and signed contract stated the seller to pay for appraisal. I had the contingency sale on appraisal on my offer. My offer was 160k in March. It took three months to get the seller’s bank to sign my approval for short sale. My lender, Wells Fargo ordered an appraisal which came in late June at 150k. I then countered for 150k. The seller refused to lower the price and the deal was over. Three weeks later Wells Fargo is calling me to pay appraisal. I believe since I had a signed contract stating seller to pay, I shouldn’t be responsible for appraisal fee whether my contract fell apart or not. The contract was valid during appraisal. On top of my frustration the Wells Fargo loan officer tells me to screw off and she will take me to collections because this fee is coming out of her pay and she did me a favor. Any thoughts?
Justin,
From your account, I would say you did everything you agreed under the contract with the seller. On the other hand, your application for the mortgage may have made you accountable for the appraisal. These agreements are separate, so an agreement in one does not bind the other party.
Did you have a real estate agent representing you? If so, your agent should be able to smooth things over with the bank. Give it a shot.
Carl