Pricing pitfalls

C - The Home Appraisal: How can it cost you thousands?

In order to establish a value on a home, homeowners often refer to an appraisal they had in the recent past. Appraisals became more common as refinancing, home equity loans and lines of credit gained popularity and as more people became aware of their home’s appraised value.

You might have gotten a home equity loan or equity line of credit and were pleasantly surprised to find out that your home had greatly appreciated.

Or had it?

Normally, when lenders request an appraisal, they aren’t as interested in the value of the home as they are in their ability to recoup their loan. So, in fact, many of these appraisals that were made and subsequent loans that were given had little to do with the actual market value of a home.

The inflated appraisal figure arrived at to tap into the value of a home was often influenced by the requested loan amount and the desire of the lenders to loan more money. The approved line of credit or loan amount had more to do with the owner's credit, the strength of equity the owner had in the property, the loan payment history and the owner's ability to repay this new loan. These are items that influence the amount of risk a lender will assume in making a loan. But often they had little to do with the home’s real market value.

In this respect, older appraisals aren’t the best tools for pricing your home to sell. Base your asking price on them and you could be in for a long marketing period and desperate reductions in the asking price.