Barbara, Home Seller in Red Hook, NY

Who determines a home's value?

Asked by Barbara, Red Hook, NY Tue Dec 16, 2008

I listed my home with a realtor after interviewing a few. Three realtors gave me about the same number I should sell my home for. After weeks on the market - I got an offer. A few dollars less than my asking price. After inspections and after the buyer spent a lot of money on experts, they still agreed to by my home with a small price adjustment. Then the bank came in a valued my home at $150,000 less than what I wanted to sell it for. Another bank came up with almost the same number. Had I had a bank inspect my home first, would I have saved a lot of time and stress? I am now looking for a new realtor and deciding on how to price my home. By the way, the buyer backed away even with 20% they had to put down.

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To understand the bank's appraisal and how it could be so far off from the offer price, you have to take a hard long look at 'value' versus 'price'. Everybody seems to use these terms interchangeably but they are very different - and once you understand the difference, you'll clearly understand why the housing market is out of whack.

'PRICE' is simply a number represented in dollar terms attached to a home. 'VALUE' on the other hand is determined only by market forces of supply and demand. If supply is constant, then higher demand = more 'VALUE', less demand = less 'VALUE'.

Here's the rub - ARTIFICIAL demand was created for years by a low interest rate policy by the Federal Reserve and easy credit requirements by banks and mortgage companies. It was nothing short of a 'MONEY PARTY'. Virtual 'free' money was available to everyone - but was this 'real' ?? While 'VALUE' remained relatively constant in real terms, 'PRICING' was incredibly inflated by artificial demand. The 'MONEY PARTY' is over now.

Housing 'PRICES' are now falling to their equilibrium point - based on true market 'VALUE'. Banks are acutely aware of the PRICE/VALUE paradigm and in many cases, it is at odds with current 'LIST PRICES' and buyers 'OFFERS'. And needless to say, many homeowners are caught in a bad situation.
1 vote Thank Flag Link Wed Apr 1, 2009
You left some important information out of your story:
Red Hook has some homes at $9,000,000, and the have some homes at $290,000.
If you have a $5,000,000 home, then $150,000 is only 3%.
But if you have a $300,000 home, then it is $50%
You can see how that would impact your story.

If you had three Realtors give you similar values, then they must have done CMA's to arrive at their numbers.
You didn't say that either; but I will assume.

I am also going to assume that you do not have a cheap house; but rather, something above the median.

It is possible and very likely that you have an anomaly; hard to value, hard to appraise, hard to sell.
Please do not take this out on your Agent.
If this is the situation; you will have to exercise greater patience.
And no, we have not seen Appriasers and BPO excluding Distressed sales from their computations: This makes it harder for the Normal sales to be valued, particularly the higher end sales. Since Distressed sales encompass 70-80% of all sales, they cannot be ignored, making to more difficult for you.
Your Buyers simply have to understand this.

Good luck and may Gopd bless
0 votes Thank Flag Link Sun Dec 11, 2011
banks dont inspect homes before you find a buyer. you could have had the home appraised before-hand, but few people do that.
0 votes Thank Flag Link Sun Dec 11, 2011
Sounds like you had a couple of really bad appraisals. Problem may be that your buyers were using out of market lenders who hire out of market appraisers? I agree with others here that you should hire a local appraiser yourself. I work with many NYC buyers who have lender relationships in NYC, who retain metro-area appraisers. Almost always a nightmare. If I can help you with local referrals let me know.
0 votes Thank Flag Link Sat Feb 28, 2009
Just a quick note as I know this is an old question: Appraisers are NOT supposed to consider Short Sales and Foreclosures as Comparable Sales against a "normal" sale. They have their work cut out for them today, but it is important that Short Sales and Foreclosures, both of which we refer to as "Distressed Properties" are adjusted up to true Market Value. Appraisals must measure everything on an equal ground. So even if you and your neighbor have identical houses, but they were foreclosed on, that price is not reflective of True Market Value.

I'd love to see how this plays out: Any chance of letting us know when it is listed again Barbara?
0 votes Thank Flag Link Sat Dec 27, 2008
A quick answer to your question is the value of a home is determined by what someone is willing to pay for it. Comparables help sellers and agents aggressively price a home in the market. It is usually considered overpriced if it just sits there, but having gotten an offer for close to the asking price would have one assume it was fairly priced in the market. The fact that not one, but two, banks low balled the price brings up some questions. What is unique about your home? How much work needs to be done on it? What comps did the banks use? A home that is unique, whether by structure or by location is difficult to appraise. My recommendation would be to hire a certified NYS appraisor before putting your home on the market again. I wouldn't necessarily blame your agent. With this rapidly changing market, it is difficullt to keep a pulse on price on a monthly, weekly or even daily basis. A few years ago my husband and I were selling our custom built log home. Most people, banks included, don't understand the value of log homes. It took quite a while to sell it, but we eventually got the asking price. One of the problems was that banks from Westchester, not Dutchess were doing the appraisals. Once we hired our own appraiser from Dutchess and had a point by point breakdown done, we had no problems. Things are done differently in different areas. I always recommend to my clients/ customers to wrap themselves around professionals in the area where the home is located as this helps to expediate the selling/buying process and it is done more fairly with a great deal more knowledge and understanding in all areas. Good luck. If I can answer any other questions for you, please don't hesitate to contact me. Thanks................................Margo
0 votes Thank Flag Link Tue Dec 16, 2008
Scott is right - very unusual situation. It sounds like the property was on the market for a very long time and as the market changed the agent/broker was not regularly providing updates and monitoring comparbale sales. A good agent should be giving a new analysis to the seller every couple of months. 150k is too huge of a difference and TWO appraisals within range of one another cannot be wrong. It's so unfortunate that you had to test the market value this way.
0 votes Thank Flag Link Tue Dec 16, 2008
This is actually unusuall to have that much of a difference. A good broker will use the same process as an appraiser. Simply put they will look at the 3 most similar properties that have sold within the last 6 months in your area. if there is a lack of comparables they may use neighboring towns if the makeup of the town is teh same and land values are similar. They then take the comps and add or subtract for things such as condition, garage, sq feet, thisngs like fireplace, finished basement, newly remodeled, hw floors, ceramic tile etc etc etc. they then can come up with a value for that property and average the 3 . You should get a copy of the appraisals so you can give to your realtor to se where the differences are coming out, an appraiser will make changes if you have proof so dont just takle them at their first word. . good luck with your sale.
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0 votes Thank Flag Link Tue Dec 16, 2008
The bank that is willing to loan on your home is the one. Yes someone might be willing to pay more for your home but if the bank is not willing go give anyone a loan on it for what you are asking for it it would be no deal. If someone would be willing to make up the difference of what the bank is willing to loan then you would have a deal. Most people today would not pay more for a home then what the bank says it is worth. If you don't have to sell I would take your home off the market until times are better. You may have a lot of foreclosure properties in your area that is bringing down your value. A real estate agent prices your home with what is on the market. An appraiser comes in on what is sold. If the bank feels that your area is declining they will cut the appraisal price. Banks are really watching appraisals. This is where they got in so much trouble with homes over appraised. Again if you don't have to sell you might want to wait.
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0 votes Thank Flag Link Tue Dec 16, 2008
Hi Barbara

I am sorry you experienced such disappointment and angst. I agree with Carol about your property perhaps being unique and few comps being available. I would also suggest obtaining your own independent appraisal from an appraiser in your area to assist you in pricing, explaining the circumstances leading up to this. I wish you the best.
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0 votes Thank Flag Link Tue Dec 16, 2008
There is a lesson to be learned in a constantly changing real estate market and thst is the home values are changing almost daily.

The next time through we recommend having an appraisal done up front so prospective buyers will have a reference point. Remember this appraisal may only be considered good for 4-6 weeks but it will provide a reference point for buyers, keeping them in step with current and acceptable pricing.

Good luck
0 votes Thank Flag Link Tue Dec 16, 2008
Fair market value is currently based on homes in your NEIGHBORHOOD or division sold within the last 3 months when you wish to sale. That number needs to be constantly adjusted as time passes to again, homes closed within the previous 3 months within your IMMEDIATE vicinity.

I don't know what the issue was, but it sounds like we are missing some information here.
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0 votes Thank Flag Link Tue Dec 16, 2008
The bank appraisal is fluid in that it accounts for current available inventory and sold comparables (both of which are constantly changing) when determining value. However 150k variable sounds extreme unless the appraiser had a significant cost to cure adjustment(the $ it would take your home to be as valuable as the comparables). Most Real Estate brokers will do BPO broker price opinion for a fee, having no stake in the valuation you will usually get honest opinions for less then an appraisal
0 votes Thank Flag Link Tue Dec 16, 2008
It sounds like you have a unique property and few comparable sales of similar homes which have sold recently. This does happen sometimes in these situations.
0 votes Thank Flag Link Tue Dec 16, 2008
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