Homeowners get appraisals done all the time and, kind of like the guests in the Antiques Road Show, there is a certain fun and excitement about finding out what a professional appraiser thinks your property is worth. And when it comes to the number . . . shouldn’t you want the highest number possible to come back as an answer . . . Ka-Ching, Ba-Da-Bing!
Actually no. What you want is the most accurate value. Maybe a higher number sounds good right now, but you have your future to think about, and here are two situations that sadly come up where a high appraisal acts like an Appraisal Time Bomb that is ticking underneath your financial foundation.
- You are buying a house and paying too much. In the heat of the moment home buyers can overextend themselves and under various circumstances offer to pay more than other buyers would for a house. It can and does happen; I’ve seen it. The appraiser is then left with a difficult problem, they likely know that the agreed price is high, but how high is too high? Appraisers can feel pressure to rubber-stamp whatever price the buyer and seller agreed on. Markets have natural fluctuation and for a financial decision that involves hundreds of thousands of dollars wouldn’t you rather have an appraiser in your corner willing to have detailed conversations with you about their findings? Wouldn’t you want to know you were at risk of paying 10% or 20% over what market history indicates? This is why buyers, especially those buying privately should be considering independent appraisals before offering. If you pay too much you may still get your mortgage approved, based on a high appraisal value. Then you carry it for a couple of years and then life changes and now you need to sell. That’s when the time bomb goes off. You can’t sell the house now for what you still owe on the mortgage even though you’ve been paying for a couple of years. It’s not fun to watch.
- Refinance Time Bombs. If you want to refinance for whatever reason and draw out equity on your home based on an appraisal, you don’t want a number that is unrealistically high because this can easily come back to haunt you a few years down the road. It’s another way to find yourself underwater on the mortgage. In that case, you will be unable to draw more equity when you really need it. I’ve seen this happen too.
In the long run, as a homeowner, your financial stability depends on getting the value right for your major real estate decisions. If you are concerned you might be paying too much or experiencing stress because you are uncertain of your equity situation, get in touch. I want to help you decide with confidence.