When Bad Appraisals Happen to Good Contracts

What is an appraisal and when does it happen? What’s the assessed value and are either of those the same as the market value?

Nope. Appraised value, assessed value, and market value are three different numbers for the same house.

Assessed value is what the town or county jurisdiction feels your home is worth and they use it to form the calculation of property taxes. This typically trails the market value and that’s what you want. You don’t want to pay taxes off an inflated value, so having this trail the market value is best.

Market value is what someone will pay for the house - basically what would it sell for on the open market. As a buyer, this is going to be in line with your contract price. It’s the price you as the buyer agree to pay for the home.

Appraised value is what an appraiser (who is hired by the bank that is providing the mortgage loan) deems the house is worth. This may be more than market value or less depending on what the sales of comparable homes in the neighborhood are. They use a variety of factors to calculate this value.

Appraisals are problematic for many reasons but they are a required hurdle to clear for anyone getting a mortgage to buy a home. The result of most appraisal reports will state that the value is at the contract price and they won’t attempt to show more value even if it’s there. It’s rare that they miss the number and here’s where the whole system is flawed. Appraisers know the number they are trying to hit. They have a copy of the contract when they are doing the property appraisal. It’s sort of like cheating but for some reason, it is allowed.

Appraisers have zero incentive to miss the contract price - if they consistently miss their numbers the bank won’t hire them anymore. The entire system seems to be a bit of a sham.

Michael and Melissa stress the importance for a listing agent to meet an appraiser at the property. The listing agent should be prepared to show the comparable sales to ensure the appraiser isn’t going to pull bad comps and miss the number. Definitely do not leave this to chance.

Melissa hits the road with dilated pupils, scaring drivers all over the DC area, amasses an entire collection of hermit crabs who commit suicide and Michael calls her a shit magnet. Michael finally closes some long term clients who wrote many offers and they give him a bottle of wine from Spain!