Appraisals Can Help Prevent Buyers From Overpaying
An appraiser’s job is to provide an objective and unbiased opinion of value about the value of real property such as a single-family home. This information can be provided to anyone who owns, sells, or lends money on real property as security to help them make an informed purchase or mortgage lending decision.
Appraisers analyze sales information to develop their value opinions. Their opinion is based on factual property information and sales trends in the subject’s competitive market area as well as their experience and education.
Even though appraisers are available to provide market-based opinions of value some buyers still overpay for homes. I thought I would share with you today some of the reasons buyers overpay for homes in the hopes that it may prevent others from doing the same thing.
If you can add any other reasons that you have seen or would like to share your own opinion please leave a comment below.
Reasons That Buyers Overpay For Homes
1) Not familiar with the market- We get a lot of people moving into the Birmingham market from out of town.
When compared to other parts of the country housing in this area is very affordable.
Even so, a problem that sometimes occurs is that because prices are lower here than in other areas the buyer may think that they are getting a super good deal since a similar home would cost so much more where they came from. What buyers should take into consideration is how the price of the home compares to other similar homes in the Birmingham market rather than where they came from.
If they only compare the price to where they are moving from they will not get the proper context and may end up overpaying.
2) They thought the home was bigger than what it actually was- I cannot tell you how many times I will find information within the local MLS that is wrong. A lot of the times the MLS will incorrectly show the home to be bigger than it actually is.
Most real estate agents that I meet price their listings using the price per square foot metric. When they study the sales comparables they will calculate a price per square foot figure from the sales.
They will then take the price per square foot and multiply that by the square footage of the subject home. When the square footage of the home they are listing is overstated this can result in the home being overpriced. It is very important to have accurate information about the square footage of the home you are selling.
3) Personal property was included with the home- As crazy as it sounds some sellers include personal property
with the sale of a home. I have seen this mostly with condominiums when I was working in Florida years ago.
The thing about personal property is that it is not included in an appraisal because only real property is given consideration. The reason for this is because it is possible to remove the personal property and if the value of the property included it then the collateral amount would be reduced putting the lender at risk.
From an appraisers perspective, buyers should never pay more for a house because personal property is included. This should be a separate transaction and the sales price should be adjusted downward accordingly.
4) They are buying with their hearts and not their brains- A home is an emotional purchase. Whenever this is the case it is possible that a buyer will not care what the price is because they want the home so much they are willing to pay any price.
Some people are willing to do this because money may not be an issue for them. They may believe that if they live in the home long enough it will be worth what they paid when they go to sell it.
This could backfire if they have to sell the home sooner than they anticipated. If this happens and the buyer gets an appraisal they may be forced to sell for a lower amount which will result in the sellers losing money.
5) They didn’t get an appraisal- An appraisal is important in any home purchase transaction but especially for buyers that are not familiar with the market or those that are paying cash. While most people get a loan to buy a home there are others who have the ability to pay cash.
Even if a buyer is paying cash they should still get an appraisal to make sure that they are not overpaying for what is usually their largest purchase.
The cost of an appraisal is minimal when you consider how much value it provides in peace of mind knowing that you didn’t overpay for the home.
Takeaways
The key takeaways to help prevent buyers from overpaying are:
- Always seek the advice of a local professional who knows the market
- Make sure the information you are basing your purchase decision on is correct such as the size of the home
- Try to make decisions based on your brain rather than your heart
- Personal property does not add anything to the value of the house so make sure you are not overpaying because of the seller throwing in these types of incentives
Questions?
Do you have any appraisal questions that you need answers to? Please leave a comment below and I will do my best to answer. As always, thanks for reading.
Yep. I’ve seen all of the above. I find cash buyers at times in particular will drop big money because the buyer simply needs to have the property. It feels good at the time, but not so good in the future when selling.
That’s a great addition, Ryan: making a quick purchase without thinking it through. Thanks for sharing your thoughts.