6 Reasons Your Home May Not Appraise In Today’s Market

What Are Some Reasons Your Home May Not Appraise?

With the current shift in the real estate market, we may see changes in sales activity that will affect your home’s value. The market is constantly changing and it is important to keep up with what is happening if you want to stay current on property values. Today we’ll look at some reasons your home may not appraise.

A Closer Look At Why Your Home May Not Appraise

If you keep up with the news there’s no doubt that you’ve heard we are in a recession. In addition, we have had recent interest rate hikes that have started to affect the real estate market.

These factors, as well as others, have an impact on home values because it affects buyer and seller behavior. An appraisal is recorded documentation that reports on this behavior as it relates to properties that are similar to the one being appraised.

If a buyer paid ‘X’ amount for a property similar to the one being appraised then other buyers will probably pay a similar price for the subject property. Buyers are willing to pay various amounts for properties based on their features and the relative contributory value of each feature.

Anytime there is a shift in the market there is always the possibility that property values will change. If the factors that affect this change are not taken into consideration when pricing a home for sale then the appraisal and the contract price may not line up.

Today I will be sharing my thoughts and give some reasons your home may not appraise in today’s market. After reading, if you have any thoughts you would like to add please leave a comment below and we’ll keep the conversation going.

6 Reasons Your Home’s Appraisal Value May Come In Lower Than The Contract Price In Today’s Market

1) Using old sales data for pricing – In a stable market using older sales may not matter, however, in a changing market like we are in right now it would not be wise.

It’s kind of like the old saying, “you snooze, you lose”. If you don’t stay on top of what is happening you risk using old outdated sales to price in today’s market.

Prior to the interest rate change, buyers could afford to buy a higher-priced home with a lower payment, however, with interest rates increasing as well as monthly mortgage payments more buyers have discovered they can not afford the payments necessary to purchase a home in today’s super inflated market.

The best way to price a home for sale is to use the most current sales and this includes some pending sales. In addition to transactions that have already closed, you can also look at pending sales.

The pending sales are not ones that went under contract yesterday but rather homes that are under contract, have the financing and appraisal completed and are just waiting to close. These are in fact the best sales available as they reflect what is happening currently instead of 30, 60, or 90 days ago.

2) Lack of Comparables – It’s no secret that housing inventory has been dwindling over the past several years. This is in fact why we have had a white-hot market, with homes selling before they are even listed and for prices exceeding their asking price.

Because of the lack of inventory sales volume has been down. In certain situations, this has led to a shortage of comparable sales.

It stands to reason that if overall sales are down then comparable sales, which are those sales that are truly similar to the subject property and would be a good substitute would also be limited.

Not all sales are good comparables therefore it is necessary to qualify the sales by choosing only those properties that are physically similar to the subject and that a buyer for the subject property would consider a good substitute.

When sales are unavailable in the subject subdivision you must expand your search parameters to other competitive market areas. To learn more about this check out my previous post on the best way to do this.

3) Not paying attention to current market conditions – Market dynamics play a major role in property values. Some factors considered to play an important role include interest rates, the current supply of homes, other competitive properties, the number of qualified buyers, current housing demand, and time of year.

All of these factors will play an important role in how aggressively you price and market the property. In a soft market where demand is not as strong and inventory levels are higher your pricing cannot be too high.

In a hotter market like we have had over the past several years it might be smarter to price higher due to the limited inventory and the high demand due to low-interest rates.

The important thing to remember is to know what type of market we are in. While it may not be a popular sentiment I believe we are moving into a softer market than we have seen lately.

I’m not talking about a crashing market like we had in 2008 but I do believe that the recent increase in interest rates has cooled things down a bit. At this point, I think we need to proceed with caution and keep an eye on market conditions to help guide us with pricing options because if you don’t it would be easy to overprice a home in a market that is experiencing a cool-down.

4) Unique characteristics of home – The Principle of Conformity in real estate refers to the similarity of properties within a neighborhood in terms of their age, condition, size, style, and functional utility.

Anytime a property falls outside of the neighborhood parameters there is a possibility that the value could suffer. Buyers may recognize this difference and not be willing to pay a premium for a property that does not “look like the others”.

Unique properties can also be difficult to comp because there is not a lot to compare them to. It may be necessary to exceed the typical time of sale and distance guidelines to locate recent sales that are similar to the property.

This is not a hard and fast rule but it is something to consider when selling a unique property. You may also want to think about how much money you invest in updates and renovations because they may add less contributory value than you think.

5) Using the wrong comps – It’s been said that choosing the right comps is 90% of pricing a home correctly. If you get it wrong you will pay the price.

I mention this because of a job I had recently. The sales that the listing agent chose were not good comparables because they were not even in the same municipality and school district as the subject property.

I’m not sure if it’s the case where you live but school systems are big value drivers in the Birmingham, Alabama market. Buyers will pay a premium to be in a highly rated school system.

It’s quite possible for sales to be located in close proximity to your property, however, they may be in a totally different school system. The comps the agent chose in my example were from a nearby superior school system so they overpriced the property.

When I did the appraisal I used comps from the school system the subject property was zoned for, which were selling for less. Needless to say, the appraisal was less than the contract.

6) Incorrect square footage – Whether I like it or not, most agents price homes based on price per square foot. You can read more about why I don’t think this is a good idea in an earlier post.

For now, I’m just going to say that if you, as an agent or owner selling a house, choose to do this you should make sure that you have the correct square footage of your home and the comps you are using.

If you do not have the correct information then your estimated list price could be way off base. Whenever you have wrong square footage information the price per square foot of the comps will not be correct and when you apply that figure to your home, which may also have incorrect square feet, your value estimate could potentially be nowhere near its correct value.

The solution is to get your home professionally measured. You can get only the measurement or the measurement as part of a pre-listing appraisal.

By doing this you will make sure all of the information is as accurate as possible because appraisers are required to verify the information to be as accurate as possible.

Do you have any questions or comments about pricing a home in the current market? If so leave a message below and as always thanks for reading.

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  1. As the market shifts, I think the lenders will be pressuring appraisers to not be very liberal on valuing homes, as they may have been in the crazy appreciating market of the past couple of years.

    • I’m sure that will be the case. If appraisers use the most recent sales they should provide a lower price indication if that is what is occurring in the specific market in question.

  2. Matthew P Nolan says

    You do a great job. Keep up the great work

  3. For the longest time it was normative to see buyers offer way above the list price (and market value), but we’re no longer in that market. What a change we’ve seen lately.

    • That is true, Ryan. I have noticed your market is more sensitive to the changes compared to the Birmingham market, however, we do shift in a similar manner eventually.

  4. Very good Tom. However, my expectations are a little more gloomy than yours. Keep up the great work.


  1. The Tide is Turning- July Newsletter - DW Slater Company Blog says:

    […] 6 Reasons Your Home May Not Appraise In Today’s Market– Birmingham Appraisal Blog […]

  2. […] 6 Reasons Your Home May Not Appraise In Today’s Market? – Birmingham Appraisal Blog […]

  3. […] Sometimes when a market shifts and home values are affected, a home may not appraise for the agreed-upon price. Tom Horn, appraiser in Birmingham, explains six common reasons your home may not appraise in today’s market. […]

  4. […] 6 Reasons Your Home May Not Appraise In Today’s Market? – Birmingham Appraisal Blog […]

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