Aug 12, 2011

Will your house appraise?

You have a beautiful home you want to sell, but the crazy Realtor wants to list it for less than it's worth. Why don't they just let you set the price you want because you know people will pay more for your home because of its special features?

I hear this a lot. There are several reasons agents don't want to waste their time trying to market an overpriced property, but my main reason is summed up in one word - Appraisal.

Lets say you get some sucker buyer to give you a contract for your excessive price. In Dallas, most contracts are contingent upon financing and an appraisal.  Lenders require an independent appraisal by an appraiser they approve. If the property does not appraise for the contract price, the buyer can't get a loan and must cancel the contract - and get their escrow money back. 

So if you want to sell your property for more than it will appraise, you are looking for cash buyers only. Those are few. But my house will appraise you say? It’s better than those comps you're showing me. Well, here is a quick lesson to determine that:

My professional price opinion is based on a comparable market value. Like an independent appraiser, I look at homes that have sold in the past 6 months that are comparable to your property’s size, age, condition and especially location. These are the comparables that banks and financial institutions consider in an appraisal. Typically, we stay in your neighborhood and don't cross major roads for comparables. Only if there are fewer than 6 sales to compare, can the search area can be widened. Also taken into consideration is the current supply of other properties for sale and market conditions.

Special features don't add that much to an appraisal. In Texas, appraisers can't make more than a 10% adjustment on any line item. If you have sold gold fixtures, heated flower beds or your pool looks like the Bellagio, there is still a limit to how much an item can add to the value. Upgrades and other special features to the property can not account for a total adjustment of more than 10% of the sales price.

Many homeowners want to price their home based on what another homeowner is asking down the street. The asking price is not the selling price. Base your price on what the market will stand, not on an inflated price that some neighbor might be asking. Price your home based on reality, not wishful thinking.

The DCAD tax assessment value is not an accurate value of your property. Tax assessments can be quite different from true market value. And forget about the on-line estimates (or zestimates). Because Texas is a non-disclosure state, those sites don't base their numbers on actual comparable sales but usually on tax assessments, mortgage amounts, a radius search of homes and a variety of figures that are inaccurate. Is your home really in the same class as a home 1 mile north, south, east or west of you? If you're in Preston Hollow or the Park Cities, values can change a lot in 2 miles to the east or west.

Forget about what you paid for your home – it has no significance to the current market. What you want or need in financial terms is irrelevant as well. When pricing your home the most important factors to consider are comparable sales and current market conditions, as well as the cost and availability of financing. Before overpricing your home, save yourself a headache and determine if it will appraise.
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1 comment:

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