The Homeowner-Appraiser Gap And How To Squeeze It

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June 30, 2016 by Jeff Lowen

In today’s housing market, where supply is very low and demand is very high, home 20160628-Share-STMvalues are increasing rapidly. One major challenge in such a market is the bank appraisal. Yes, there is market value, there’s assessed value, and there is perceived value. None of which make a difference if the appraiser doesn’t agree.

If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the price when performing the appraisal for the bank. Some agents claim appraisers are the grim reaper of home values, others take the time to study the market and the appraisal is just another obstacle in the grand scheme of a home purchase.

An interesting metric: Every month, Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation in their Home Price Perception Index (HPPI). Here is a chart showing that difference for each of the last 12 months. Check it out:


The gap between the homeowner vs. appraiser’s opinion has started to head in the right direction (closer to even), as June saw a slight decrease from May’s -1.95% to -1.89% nationally. You might think that’s not much to worry about, but homeowners and agents alike will fight for 1%, wont they! 😉

Homeowners in the western part of the country, however, have been pleasantly surprised as their homes have appraised higher than they expected. Denver received its highest HPPI last month as homes came in an average of 3.28% higher than the homeowner believed it would. Nine of the twelve metro areas that had a positive HPPI last month were located in the west.

Quicken Loans’ Chief Economist, Bob Walters explains:

“The hot housing markets along the West Coast are growing quicker than owners realize, giving way to higher than expected prices for buyers and more home equity for existing owners.  

On the other hand, the housing markets are more balanced in the East and Midwest, leading owners to be slightly over-enthusiastic about their home’s appreciation.”

For example, if you have a home under contract for $300,000, and the appraisal comes back 2% lower, that’s a $6,000 bill someone has to make up for. Banks won’t lend more than the appraised value, so it’s back to the negotiating table.

Note: When and if an appraisal comes in low, contrary to popular belief, the seller DOES NOT have to automatically come down in price! Is your agent a good negotiator?

If the appraisal comes in higher, then bully for the buyer; they’re getting a great deal with a little equity to boot. But as a seller, how can you structure a deal so it capitalizes on the chance that a higher appraisal might happen? It’s very possible!

The moral of the story…

Every house on the market has to be sold twice; once to a prospective buyer and then to the bank (through the bank’s appraisal). With escalating prices, the second sale might be even more difficult than the first. If you are planning on entering the housing market this year, it’s time to talk about what’s happening in your area.

If your home was on the market and didn’t sell, or has been on the market awhile ~ which happens a lot in every market, it may because you’ve priced it out of your own market. Even if you did get an offer, the reaper, um… I mean the appraiser is a coming! And, you could be in for a rude awakening. Fortunately, with this gap getting smaller, the effect is minimal, and a great agent will negotiate to your benefit so the impact is negligible.

This is good news, but then every home sale is unique and very important. As is yours…


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