Appraised Value versus Market Value – Which should you use?

In an appreciating market where prices rise due to lack of inventory and low-interest rates, how much should you rely on the appraised value when you are ready to list a home in the market? When it’s time to sell the property, you want to be mindful of the following market conditions when putting the house on the market and deciding the list price:

1. Supply and demand: At the time the property is ready to go live in the market, you want to look closely at the current inventory. What else can a potential buyer buy in that market at that time that is similar to the subject property? Appraisers call this the “Law of Substitution.”
2. List price versus sold price strategies: Many Bay Area markets have the strategy of underpricing to obtain multiple offers. If you are selling in one of these markets, over-pricing or accurate pricing may become an issue. Make sure to look at the market and analyze the market based on a list versus sold price.
3. Underpricing too much is dangerous: Some people believe you can price the home for $1 and it will land where the true value is. I believe underpricing a home too much may not bring high offers and you may leave money on the table. Also, some buyers think there is something wrong with the house when the home is seriously underpriced, so keep this in mind and be careful.
4. Physical inadequacies, functional and external influences: When appraisers go through the valuation process, there are 3 areas they pay attention to:Physical inadequacies: Lack of upgrades and habitability Functional obsolescence: Funky floor plans External obsolescence: Freeway noise and high voltage power lines are some examples of such inadequacies When you are deciding on the list price, you want to evaluate these areas and compare how your property compares to other active or sold listings.

FINAL THOUGHTS When you are ready to sell your home, it’s important to understand the state of the market you are selling in to ensure you are pricing your home correctly and adequately. Look into the current inventory of homes in the market to understand supply and demand, and make sure you have a good understanding of what is happening in the local market. As a top producing agent with 20+ years of experience in the East Bay, I have helped hundreds of clients showcase and maximize the sale of their homes in the Greater San Francisco Bay Area and the counties of Alameda and Contra Costa, and my experience as a former appraiser allows me to help my clients understand the market. If you have any questions, I am here to be a resource for you.