Hey, if the market is so hot why didn’t my home appraise?

A Hot Market is not a Guarantee Your Home Will Appraise

Reasons Your Home May Not AppraiseIn a hot market like we have now a low appraisal should be the least of our worries, right? Wrong. There are still some people asking “why didn’t my home appraise?”.

It should never be considered a given that just because we’re in a seller’s market similar to what we have now that there will be no problems with the appraisal. You cannot price your home at an unrealistic value and assume that it will appraise.

Today we’re going to look at some possible reasons your home did not appraise. Let me know your thoughts by leaving a comment below, I’d love to hear from you.

8 Reasons Your Home Didn’t Appraise

1) Your home’s not in a hot area- What do you mean not in a hot area? Just because the overall market is hot does not mean every area is performing the same way.

We hear a lot on the national news about how the market is doing well but that can be a generalization. Some neighborhoods may be doing better than others.

You’ve heard the phrase “location, location, location”, right? Well, it’s true. The value of your home depends on where it is located.

A home in one location may appraise a lot less than a similar home in another area. Real estate is local so you have to make sure you are comparing apples to apples.

What I mean by this is that you have to use comps from the same area your home is located in not from an area with better schools or higher value homes.

2) Cost does not equal value- This is one of the top areas that gets people into trouble. Homeowners will invariably spend too much money on improvements and expect to get a dollar for dollar return on their investment.

A recent article published by “Remodeling” website (click link here) on Cost vs Value showed less than a 100% return on all home improvement projects listed within the southeast regions. I believe this was pretty much the case for many other areas of the country as well since a listing on their front page showed 2018 national averages that were all below 100%.

Homeowners should approach home improvements with the attitude that they are being done for their own enjoyment and not to get a big return. They should never expect to get a dollar for dollar return since studies have proven that’s not realistic.

3) Your neighbor did not tell you the truth- Did you price your home at a certain amount because your neighbor told you he sold his home for a specific price? Did you verify it?

Going on hearsay is not a solid way to price your home. People sometimes “puff up” the price they sell their home for to look good in front of their friends.

I witnessed this first hand with a client who hired me to do a pre-listing appraisal. They had priced their home based on what their neighbor (who recently sold their home and moved) had supposedly sold theirs for.

The neighbor exaggerated a little and said he had sold his home for around $15,000 more than he actually did. My client figured that since their home was very similar to the neighbors they would list theirs for a similar amount.

Because it was overpriced my client could not sell their home, which is why they called me. The moral of the story is to always verify through public records before you take someone for their word.

4) You based your list price on the Zillow Zestimate- If you priced your home using its Zestimate there is a chance that it didn’t appraise. The margin of error on a Zestimate can be significant. You should check out how accurate Zillow is in your area before using their Zestimate.

Zillow bases their Zestimate on county record data which can be flawed. It does a pretty good job of reporting the sales of recently sold homes, however, that’s where the accuracy ends.

They take the sales price of nearby homes and divide it by the square footage, which is most likely incorrect. They then take the inaccurate price per square foot and multiply that by the square footage of your home, which is also probably wrong. The result is a Zestimate, which can be very inaccurate.

Zillow actually provides information on their margin of error, which can be as much as $50,000 or more. If you price your home on the high side this could be a reason your home did not appraise.

Another reason the Zestimate is not very accurate is that they have not walked through your house and considered its quality and condition. They also do not verify if the recent sales are actually comparable. The sales may not be in very good condition or they may be of an inferior quality of construction. Using a Zestimate that is too high can spell doom for your home sale and the appraisal.

5) The real estate appraiser may not know your market- The appraiser assigned to appraise your home may not be familiar with property values in your area. Geographic competence is real and if the appraiser does not have it your appraisal could suffer.

Appraisers must be familiar with the areas they appraise in. They should have access to reliable data sources in order to locate sales and study price trends.

What sometimes happens is that appraisers from out of the area may not know the market characteristics of your neighborhood. It’s also possible that they may not have access to local data sources because they don’t want to pay for them. Because they don’t work in the area all the time the cost of data sources may not be worth it to them.

One way to prevent this is to ask the appraiser about their experience and knowledge of your neighborhood. In addition, you can find out if they utilize accurate and reliable data sources. A little work before the appraisal can help prevent a bad appraisal outcome.

6) Your house was smaller than you thought- Finding out the correct square footage of your home is one of the most important things that you should do before putting it on the market. If you don’t have this right then it’s difficult to price your home accurately.

Tom Horn Birmingham Alabama house measuring serviceA problem I commonly see is that a home’s gross living area is overstated and this results in the asking price being too high. When it does go under contract an appraisal is ordered and then the problem is revealed.

If an appraiser measures the home and it turns out that it is less than thought the appraised value will most likely be less than the contract. This is not the appraiser’s fault. It was caused by not using accurate square footage from the beginning when pricing the home. There are several ways to get the accurate square footage of your home that you can read about in a previous post.

7) Your agent didn’t know the market- Sometimes the agent is not knowledgeable of your market or they cannot find comparables. When this is the case the list price may be too high and the house will not appraise.

8) You bullied your agent into listing it at the amount you wanted, not what was reasonable- Homeowners sometimes have a number in mind when listing their home. This number is sometimes based on the payoff of the mortgages on the home or the amount invested in renovations to the property.

When you base the list price of a home on what it will take to pay off the mortgages or on the amount you put into home improvements you can overprice the home. These reasons are not based on market data and this can result in the home being overpriced.

If you want to increase the chances of selling your home for the most money in the least amount of time the list price should be based on comparable sales and competitive listings.

As you can see there are multiple reasons why your home may not appraise even in a hot market. You cannot take it for granted that your home will sell no matter what the listing price is.

Buyers are savvier these days because they have information available at their fingertips to help them make better-educated decisions. If you want to reduce the chances of your home not selling you might want to consider a pre-listing appraisal. If I can answer any questions do not hesitate to contact me.

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  1. I love this post! You’ve really covered all of the bases. Thanks so much!

  2. This was a fantastic post! I have seen every one of these scenarios in my market as well. There is definetly a perception that people will get whatever they are asking for in the current market. Timely post! Thank you!

    • Exactly, Jamie, and that is why I wrote this. Sellers should not think they can ask what they want because they will be very disappointed.

  3. Some good stuff here Tom. I think I’ve seen every single scenario you’ve pointed out. Just because the market is “hot” overall does not meet every sub-market is hot. That’s not an easy pill to swallow. I just heard of a property that is actually 500 sq ft smaller than it was advertised. The seller is married to the contract price of course, but it’s highly reasonable for the price to be negotiated down now. We’ll see what happens. And yes, the appraisal came in lower than the contract price.

    • Thanks for sharing, Ryan. Yeah, it is a hard pill to swallow, especially when you see other homes selling for top dollar. A little ego smasher. 🙁

  4. Love it! Esp #8 🙂

    Agree to all points. People are paying more than the true intrinsic value of their home in this “Hot Market” Appraisers are not there to make the deal work only to report what the REAL market deal is! So yes, even in a “hot market” it may fail to appraise for the sales contract price.

    Thanks Tom, always great stuff!!

    • Thanks, Mary. I’ve heard agents talking about homes not appraising and I remind then that the value has to be supported rather than pie in the sky.


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