Appraised value vs. market value — have you heard these phrases before? If you’ve worked with a client in the past three years, you’re bound to have been in a situation where the appraisal came in lower than the agreed purchase price.

In that situation, you’ve probably thought, “Doesn’t this appraiser know the market? There is nothing for sale!” You’re not wrong. There is limited inventory and unprecedented buyer demand, but when your client is obtaining a mortgage, there is more to the equation.

In our three-part series, Up Your Appraisal IQ, we will tackle the drivers of appraisal value, your options if your value comes in low and the tools and technology lenders use to ensure accurate valuations.

So let’s get down to business. Why doesn’t the appraiser understand the market? Let’s work on the premise that the appraiser has used appropriate comparables, but the value just doesn’t equal the sales price.

When a borrower is taking out a mortgage — all agencies and investors have copious amounts of guidelines and rules appraisers must use when completing the appraisal. While we won’t address all of them, the major ones are that the appraiser:

• Typically cannot ignore appropriate closed sales.

• Cannot use sales that closed AFTER the initial appraisal inspection.

• Cannot use listings that have not closed (but can use them to help justify bracketing of closed sales).

• Can make adjustments based on time since the comparable went under contract, condition, amenities, location and square footage.

• Can use YOUR insight, data and information to help frame the interest in the property (like getting multiple offers).

When this is all taken into consideration, the appraiser may not be able to bracket the value of the home using the best comparable sales to what the property sold for or what the buyer feels the home is worth.

The buyer is the market and therefore why we call it “market value.” The appraiser using their guidelines presents what they believe is the “appraised value.” The goal is they are one in the same, but understanding what they can and can’t do may help explain why this doesn’t always happen.

Your Key Mortgage loan officer can offer insight, education and options to you and your clients as you are presenting or accepting offers and provide a path forward based on the outcome. Tune in next week to learn more about what those options are and add yet another tool to demonstrate your value to your clients. Want to learn more or see how you can incorporate this into your buyer or seller consultations? Just reach out to Key Mortgage LO today!