The appraised value of a property and its selling price often do not match, creating scenarios that can puzzle even experienced real estate investors. The divergence between these figures can influence various aspects of a real estate deal, from negotiations to mortgage approvals. This blog delves into the factors that cause these variations and provides strategies for dealing with discrepancies effectively.
Factors Contributing to Variance Between Appraised Value and Selling Price
- Improvements and Upgrades Property improvements and upgrades can significantly affect a property’s selling price but may not always be reflected proportionately in the appraised value, depending on the appraiser’s criteria or the timeliness of the appraisal.
- Economic Conditions Economic fluctuations can lead to rapid changes in market conditions that appraisals, often based on historical data, may not immediately capture. For example, a sudden economic downturn or boom can alter buyer behavior and market prices dramatically.
- Appraisal Methodologies Different appraisal methods can yield different values for the same property. For instance, the cost approach might give a different value compared to the sales comparison approach, which could lead to discrepancies with the current market selling prices.
Strategies to Manage Discrepancies
- Seek a Second Appraisal If the appraised value significantly affects the transaction, consider seeking a second appraisal to confirm the accuracy of the first. This can be particularly helpful if the initial appraisal seems out of step with current market conditions.
- Adjustment of Sale Terms If a property sells for more than its appraised value, buyers and sellers may need to renegotiate the terms to cover the gap between the appraised value and the selling price. This might involve adjusting the down payment or reevaluating the sale contingencies.
Conclusion
While discrepancies between appraised value and selling price are common in real estate, understanding the reasons behind these differences and knowing how to handle them can lead to more informed decisions. By leveraging strategies such as securing a second appraisal or renegotiating sale terms, both buyers and sellers can navigate these discrepancies effectively, ensuring both parties reach a satisfactory agreement in their real estate transactions.