Why Appraisals Rarely Exceed the Sales Price in Sacramento

Why do appraisals rarely exceed the sales price in Sacramento? In fact, I know that sellers definitely want to know: why do appraisals come in at the value anyway? Seems rigged. Good questions. Although it is also rare to meet that goofy kind of buyer who says, I thought the home would appraise way over list price, and since it does not exceed the sales price, I don’t want to buy it. Those kind of buyers are out there. A Sacramento listing agent does not really know what buyers are thinking when they make an offer to buy a home, but after years go by, it gets easier to guess.

Further, appraisals rarely exceed the sales price because that could result in a non-conforming appraisal. Wha, you exclaim? How that can be? Wouldn’t the lender be happy with a lower loan-to-value ratio? No, the answer is no. The only values a lender will consider is the sales price, if it’s lower, or the appraisal, if it’s lower. Whichever is lower. In addition, an underwriter might think something is wrong with a home that appraises for a lot more than its sales price. Because that would be weird.

I know buyers often think they know more about the market than the agents who work in those markets or the sellers who live in those neighborhoods. Don’t get me wrong, buyers are very knowledgable, but they generally don’t know more than professionals in the industry. Because experienced Sacramento Realtors know that if you list a home too low, buyers will bid up that price. It’s virtually impossible to sell a home for less than market value when that home has been exposed for a long period of time to a wide pool of buyers.

Generally, since appraisals rarely exceed the sales price, appraisals tend to come in right at the sales price or sometimes lower. A lower value would result in a low appraisal, and those do happen. Buyers get overly excited and bid up prices above the price at which the home will appraise. Because appraisals are based on comparable sales. Not market. In those cases, buyers either pay the difference or sellers lower the price. Buyers usually do not cancel. Instead, they are generally very excited.

It is rare for a seller to lower the price after a low appraisal and then have a buyer demand a deeper price cut. I know. Nuts, right? But I have witnessed buyers try to do exactly that. Makes a person wonder what they’re smoking. Their reasoning is they thought they were getting a deal when the seller discounted the price and accepted their offer. Now if it appraises at a bit less, buyers may have lost enthusiasm for the house they claim to love.

They probably imagined they were getting a smokin’ deal. Pulling the wool over everybody’s eyes. Which meant the contract was probably signed in bad faith. Have you ever heard of a buyer leaning toward cancellation because the appraisal was too low? Sellers, yes, but buyers?

Some buyers also don’t realize an appraisal is only one person’s opinion. It is not a fact. Not etched in gold.

Just when you think you’ve seen it all, there is always some new fresh hell on the horizon to let you know that you will never see it all. Even after 44 years in the business, there is always new crap.