How much of a problem can an appraisal cause?

When you list your home for sale, you are not only selling the home to one "person".  You are actually selling your home to THREE different people for the same transaction - another Realtor, the buyer, and the appraiser.  Unfortunately, if the appraiser does not share the same opinion of the property's value, the deal can die.  The appraised value is paramount to the buyer securing a mortgage.  It validates the market price of a home, which is significant to the investor providing the mortgage funds.  How much of a problem can "appraising out" be?  According to Quicken Loans, it will most likely be an issue in 2016. 


First American Title issues a quarterly report, the Real Estate Sentiment Index (RESI), which “measures title agent sentiment on a variety of key market metrics and industry issues”. Their 2015 4^th Quarter Edition revealed some interesting information regarding possible challenges with appraisal values as we head into 2016.

“The fourth quarter RESI found that title agents continue to believe that property valuation issues will be the most likely cause of title order cancellation over the coming year.”

This shouldn’t come as a surprise. In a housing market where supply is very low and demand is very high, home values increase rapidly. One major challenge in such a market is the bank appraisal. If prices are jumping, 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.
Another monthly report by Quicken Loans measures the disparity between what a homeowner believes their house is worth as compared to an appraiser’s evaluation. Here is a chart showing that difference for each month through 2015.

Bottom Line

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. That is why we suggest that you use an experienced real estate professional to help set your listing price.