Appraisal to Establish House Market Price

Appraisal to Establish House Market Price

In the real world, very few individuals order appraisal reports to establish a house market price or to substantiate a purchase price. At the point that an offer to purchase (in a typical residential transaction) is made, the price has been set by other parties, not the purchaser. The seller, who wishes to obtain the highest price possible, or the agent, who receives a percentage of the price as compensation and often represents the seller in the transaction, determines the price.

The real estate agent will typically perform a comparative market analysis (CMA). The appraisal laws in most states allow real estate agents to perform CMAs without an appraiser's license or certification. A CMA is a necessary part of the agent's preparation for a listing and consists of examining sales of properties in the area to arrive at a listing price.

The reliability of the CMA depends upon the agent's experience and the characteristics of the property. The agent will suggest a selling price (which is close to the house market price) to the seller based upon the analysis. However, neither the seller nor the agent is bound by the results of the analysis, and the agent is not required to follow any formal procedure in completing the CMA. If a seller wishes to list the property at a price higher than the price suggested by the agent, then the agent may be forced to accept the listing at that price or risk losing a commission.

Purchasers believe that they are getting a good deal if they make an offer lower than the listed price, but how far above the market value was the property listed? 10%, 15%, maybe even 20% above the fair market value? A negotiated price of 10% less than the listed price on a property that was listed at 20% above its value is not a bargain. The agent cannot tell the purchaser that the offered price is higher than the value, or even higher than his or her own CMA. In most states, they must submit the offer to the seller.

The seller of a property may want to order an appraisal before listing the property to determine the actual house market price. Of course, the cost of the appraisal is always a deterrent, especially if the seller knows that a buyer will pay for it when applying for a loan, but the appraisal is often justified. The seller could lose a sale if the property appraised for less than the sale price when appraised by the appraiser.

In the long run, the house market price is really determined by the buyer and seller. I've always said, "a house is worth what the buyer is willing to pay and the seller is willing to sell it for!"

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