An appraisal is what you get when you ask an estate agent what your property is worth. It’s his advice to you as to what he thinks you might be able to get on the market if you list it with him. It will be forward looking, with the thought of listing it in say, three months’ time, and selling it sometime after that. So the direction that the market is moving will make a big difference. An upward moving market will tend to lift the values of the appraisals. Also the outcome may be influenced by the desire to motivate you to sell and to list it with that particular agent. So, it’s not uncommon for that appraisal to be relatively high. This appraisal is not a proper valuation, and it cannot be used with a lender to establish the market value of the property.
While any real estate agent can give you an appraisal, only an accredited valuer who is on the “panel” of the lender can give you a valuation that can be relied upon by the lender when you apply for a loan. That “panel” is a list of approved valuers for that lender.
When a valuation is provided for a loan, the valuer is focused on protecting the lender. They are not focused on providing a ‘hopeful’ value that might be achieved if the right person happened to come along with pockets full of money and a passion for your particular home. Instead, they are looking at what could confidently be obtained by an ordinary buyer AND within a reasonable selling period (usually 3 to 6 months). Their approach is focused on the recent past, not the future. They look at actual sales of similar properties in the area over the last six months to determine what it might sell for within the next three to six months. So, if over the last six months there were similar properties that sold at very low prices - that would pull down the valuation of your property.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.