A house on the market can have three values, or prices: the listing or asking price, the sales price and the appraised price. If that's not confusing enough, the three prices can either vary considerably or be quite close together. The asking price is the price the seller offers the house for sale. The sales price is what the home actually sells for. The appraisal is the value assigned to the home by an objective third-party professional. The appraised price may or may not be a factor when you make an offer on a house.
A professional real estate appraiser completes a home appraisal. It's based on the square footage of the home, amenities, zoning compliance and condition of the home. Think of it as a benchmark. You wouldn't want to pay more than the appraisal and hopefully less. The challenge is that an appraisal isn't required when the house goes on the market.
Houses are usually appraised in order to obtain a mortgage — and that's after your offer is on the table. So, no, the appraisal isn't a factor when you make the offer. The lender wants to make sure that the loan isn't granted for more than what the house is worth. In weaker economic times, the mortgage amount is no more than 80 percent of the appraised value of the home. Don't be surprised if the home's appraised value is the same as, or lower than, your offer. If it's lower, you have to pony up the additional money or renegotiate the sales contract.
Someone has to pay for the appraisal. It's possible that the homeowner obtains an appraisal before, or during, putting the home on the market — but it's not common. Mortgage companies want a recent appraisal due to fluctuating home values. In slow markets where houses don't sell for up to six months or longer, that may mean that the appraisal has to be done again at the time of the sale.
You could, with the seller's permission, have your own appraisal completed. The seller has to give permission to allow the appraiser on his property. The seller may insist on a copy of the appraisal in exchange for giving permission. That takes away any advantage of you making an offer that's considerably lower than the appraisal. You could get a rough estimate based on the square footage of the property — it's usually listed as part of the property's description on the real estate agent's Multiple Listing Service description. That wouldn't tell you, however, if there are condition or zoning compliance problems.
Down and Dirty
It's possible to estimate the value of the home based on properties that have sold in the last 12 months; just note that doing so isn't official and has no impact on the appraisal of the property for the mortgage. The more similar the properties and recent the sales, the more accurate your estimate will be. Look up recent home sales — not listings or sales prices — by zip code of the home you're considering. Make a list of homes in the same neighborhood as the home you want to buy including the square footage, amenities and sales prices. Divide the sales price by the square footage to get a price per square foot. Add together all the price-per-square-foot numbers of all the sold properties and divide by the number of homes. Multiply the square footage of the home you're considering by the average price per square foot to arrive at an estimate of the appraisal.
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