Appraisals in a Seller’s Market-should they matter?

Appraisal: An appraisal is the estimated value of a home determined by an inspection of the property and its comparison to recently sold homes in the area to estimate the value

Real Estate agents use the most recent sales in a neighborhood to help determine how much a home will most likely sell for, and lenders use appraisals to determine that the amount of the Buyer’s loan does not exceed the value of the home.

Now, with more than half of homes in the Denver area selling for above list price, to compete Buyers are faced with needing to increase their down payment amount to make up the difference between the appraised value and their actual purchase price. This means hundreds of homes are purchased for more than what an appraiser said they were worth and Buyers are bringing extra cash to closing.

The question is- Should something be worth what someone is willing to pay?

If a Buyer qualifies for the amount they want to spend and have made a decision that a particular property is worth that much to them, should the appraisal matter?  

Some would say no, but as long as money is being borrowed for mortgages, appraisals will not be going away any time soon.   They are a protection for the bank or lender.  

As neighborhood values continue to increase, the sold prices are publicly recorded, whereas the value opinion on the appraisal is usually only available to the Buyer and their lender.  Demand and what consumers are willing to pay will ultimately drive appraised values more than actual appraisals.   More data will empower appraisers to value more homes at what consumers are willing to pay. 

As part of the real estate community, I continue to work with lenders who have an understanding of the current market conditions, have programs in place to help Buyers with their appraisal gap and we continue to advocate for Sellers and Buyers alike- because the ultimate goal is always to live someplace you love!