Sale Price & Appraised Value Should be the Same?
Not necessarily. Read on my friends….
The sale price is the amount paid by one party to another, in exchange for ownership of a piece of real estate. It is usually determined by market forces, most notably demand and supply of that housing type. Other items that impact sale price are buyer and seller motivations and knowledge discrepancies. The Appraised Value is a more broad approach to value and excludes any specific motivations or knowledge discrepancies between the two parties and looks to the whole marketplace, including multiple transactions and listings to determine the most probable sale price of the property. Another way to put it, if the home was to hypothetically be listed and sold another 20 times, what would the “average” selling price be. The answer may differ from the contracted price. The sale price could have been an outlier, and much higher or lower than the actual market value; hence an appraisal may become an important part of the mortgage financing process.
How Does the Appraiser Determine the Value?
An appraiser’s job is to determine the market value; or the most likely selling price of a property as of a given date. In attempting to solve this riddle, the appraiser completes a site visit of the subject property and gathers all pertinent information and then looks to the market for recent sales and active listings of comparable properties.
Since no two properties are alike, the appraiser will make upwards or downwards adjustments to each comparable based on differences between the comparable sale and the subject property.
For example, most buyers pay a premium for better location, larger home, superior renovations and unobstructed views. The amount adjusted for these differences is based on market support and appraiser experience and can vary slightly from appraiser to appraiser. Similarly, most buyers pay a discount for properties that are of lower quality construction, poorly maintained or located on a busy street with traffic noise.
Why Does an Appraisal Often Match the Sale Price?
The appraiser’s job is not to support a sale price. It is to provide an unbiased, 3rd party opinion of value. As you will learn, it is no coincidence that the appraiser’s value is often the same as the sale price.
At Adlaw Appraisals, appraisals are coming in “low” every day as we are in a downward market and the fact that some buyers are still over paying for real estate. Similarly, we appraise properties above the sale price if the evidence supports that. More often than not, if it’s a recent MLS sale, and there is good available market data, the appraised value will match the sale price.
When completing an appraisal for a recent purchase, It is no coincidence that the appraiser comes out to the same value as the sale price. Buyer’s of real estate are making similar plus / minus calculations in their heads when determining an offer as does an appraiser. The buyer for the subject property is making a purchase decision based on the features of the property in relation to what has recently sold, and also what is currently actively listed. Ah ha! Exactly what an appraiser does! Hence, it is no coincidence that the appraisal would match the offer or sale price.
Why Isn’t the Appraised Value Ever 10K Lower than the Sale Price?
Example: Recent market sale at $835,000.
If the appraiser has done their due diligence and has come up with an adjusted range for the subject property of say, $800,000 to $850,000 and the sale price is $835,000, they are inclined to support the sale price and deem it as “reasonable.” If the appraiser chose to appraise the property at $825,000, for example, they would be doing a disservice to all stakeholders involved by slowing down the process, having the lender re-negotiate the mortgage, among other things. No realtor or appraiser is good enough to know within 1% the value of a property. If the appraiser is adamant that $825,000 is the most probable selling price, and there is good evidence, then they should appraise the property at $825,000 and not the $835,000 sale price.
How Come the Appraised Value is Never Higher Than the Sale Price?
Never say never. If it’s for mortgage financing purposes, typically the lender will lend on the lower of the two values (sale price vs. appraised value) so the appraiser should be 100% certain that the sale price is low, before they appraise the property at a value higher than the sale price. Since the real estate market is near perfect, rarely are individuals getting a property for below-market value. However, it does happen on occasion, and when it does the appraiser should be comfortable in appraising the property higher than the sale price.
As long as the sale price is reasonable, based on a thorough investigation, the appraiser has the discretion to “support the sale price” in their appraisal. If the appraiser feels the sale price is high, based on the research, they can appraise it below the sale price which may impact the mortgage as the borrower will have to put more money down. And if the buyer got a deal, the appraiser can value it above the sale price. One thing is important, if the appraiser is going to value a property higher or lower than the sale price, and potential negatively impact the deal, they must be fully prepared to defend the appraised value to the appraisal gods (ie) Appraisal Institute of Canada, Lender, Broker Client if applicable, realtor and possibly homeowner).
Let the team at Adlaw Appraisals assist you on your next appraisal, for mortgage, tax, separation, estate planning or other.
Real estate appraisers in Vancouver
If you want to know a home’s value and are searching for a real estate appraiser in Vancouver, contact us at Adlaw Appraisals Ltd.
We provide home appraisals for mortgage financing, market and listing, estate, tax, litigation, separation, and relocations.