Understanding the Importance of Home Appraisals in the NJ Real Estate Market
Do you know anyone that likes to waste time or lose money? Me neither. Navigating the NJ real estate market can be tricky. Obtaining accurate data from an independent and unbiased home appraisal can make a significant difference in both time and money.
When a homeowner is looking to sell their home, they have a few options. The majority will use a realtor who can provide a CMA (Comparable Market Analysis). A CMA will show some comparable homes in the market and display if that comparable is inferior or superior. This is typically done with a plus or a minus next to the column of features as compared to your home. The result will be a “ballpark” of what they believe to be the value. Depending on the available comparable data, the ballpark range may be larger than desirable.
On the other hand, an appraisal will use monetary adjustments for the different features based on market data. The result will be an accurate valuation of the home.
Another option is for a homeowner to jump on Zillow and see the “Zestimate” value of their house. I have performed a study of appraised value and sale prices versus the “Zestimate.” While some values were close, other values were as far off as 38%. The main problem with Zillow’s algorithm is that they do not know the condition and quality of the homes. Therefore, if a home was recently gut renovated the value will not be reflected. Conversely, and as I have witnessed if people do not keep up with the home and it is in poor condition, the value is also not reflected.
So why is it so important to get an accurate NJ home appraisal?
To put it simply, time and money. Here is an example of a scenario that as a home seller, you should understand.
Example 1 – wasting time
You list your house for $500,000 and in this market with low inventory and this price range, it draws a lot of demand. There are 4 offers all over list price with the highest being $600,000. You are excited about getting $100,000 over list price and accept that offer which did not waive the appraisal contingency. That means the bank’s appraisal will need to come in at $600,000 or the buyer will have to bring the difference in cash to the closing table. The bank’s appraisal comes in at $550,000 and the buyer does not have $50,000 in cash to bring to the table. After weeks of attorney review, the appraisal scheduled and written, the deal falls apart.
You go back to the second, third, and fourth offer who happened to bid on other houses during those weeks and are no longer looking at your home. Now you must change your listing to active again instead of under contract and the house sits on the market. This causes the listing to appear “stale”. It has lost its momentum. This scenario happens. Had the sellers obtained an appraisal of the fair market value, they would have been able to understand that the bank appraisal needed to be waived or know that the buyer had enough cash in reserve to make up the difference.
I often see on appraisal contracts that the appraised value will need to be at least to the list price and the buyer will make up the difference at the closing table as an appraisal contingency.
Worse is if this scenario happens during a declining market, that time wasted is also money lost. Even the seasonal change of November’s fall market into December’s winter market can result in a lower value.
Example 2 – losing money
As a seller, if you forgo a home appraisal to know what the fair market value is and decide to list privately without the use of a realtor, you may be “leaving money on the table”. Perhaps you felt $485,000 was a good list price and the first person who sees the house accepts your offer. The expense of a home appraisal could potentially be worth thousands of dollars more in your pocket had you listed the house at the higher appraised value had you ordered one.
Realtor strategies vs. a NJ home appraisal
Hiring a realtor to sell your home is recommended, however know that there are different strategies that they use to list a home. Some will list it high and leave room to negotiate. Some will list it low to draw demand and hope for a bidding war (of course it is also easier to sell when a home is listed low). Some will try to list it at what they feel is right at market value. Whatever they choose, they do have “skin in the game” as they are working off a commission. Appraisers are only focused on the fair market value and can provide an unbiased independent approach.
Whether you decide to list your home with a realtor or list it privately and sell on your own, knowing the fair market value from a certified licensed appraiser is optimal. It is your best way to make sure your selling process is smooth while getting the most money you can for your home.
Home appraisals for buyers
If you are looking to purchase a home that has been sitting on the market or perhaps it is a unique property, you may be unsure of how much to bid. We can also provide appraisals to buyers looking to purchase a home. This is a sure way to have that peace of mind when placing an offer that it is fair and that you are not offering over what the home is worth.
As a company that provides accurate home appraisals in NJ, we strive to make sure you understand the value of your home. Our team is here to help and answer any questions you may have before or after the appraisal process. Give us a call now at 908-233-1337 to find out the value of your home.
Also, find out how to prepare your home for an appraisal.