Blog > Why Understanding Appraisals Matters When Pricing a Home
Many homeowners focus on what other homes are currently listed for when deciding how to price their property.
While active listings are important when evaluating competition, appraisers determine value using a different set of data.
Understanding how appraisers evaluate a home can prevent costly surprises once a buyer is under contract.
Appraisers Focus on Sold Data
When a buyer uses financing, the lender requires an independent appraisal to confirm that the property supports the contract price.
Appraisers do not determine value based on what homes are listed for.
Instead, they rely primarily on:
• Recent sold properties
• Comparable homes in the same area
• Similar square footage and features
• Adjustments for condition and upgrades
These standards are used to determine whether the agreed-upon price is supported by the market.
Why List Price Does Not Determine Value
Sellers sometimes assume that if a property is listed at a certain price, the appraisal will support that number.
However, the appraisal is based on evidence from recent sales, not on the seller’s expectations or list price.
If comparable homes have sold for less than the contract price, the appraisal may come in lower than expected.
When this happens, sellers are often forced to:
• Reduce the price
• Renegotiate the contract
• Or risk losing the buyer entirely
In today’s market, where inventory has increased in many areas, a growing number of appraisals are coming in below contract price.
Declining Markets Can Influence Appraisals
Appraisers are trained to recognize changing market conditions.
In markets where prices are stabilizing or declining, appraisers often adjust their analysis to reflect those trends.
This means that pricing a property significantly above recent comparable sales can increase the likelihood of an appraisal coming in below the contract price.
Square Footage and Public Records Matter
Another common issue involves square footage that does not match public records.
If additional heated living space was added but was never updated in official property records, the appraiser will typically rely on the recorded square footage when comparing the home to similar properties.
This can significantly impact the final valuation.
Having heated square footage that does not count in public records can be devastating to value, especially when comparable homes are being evaluated on a price-per-square-foot basis.
Understanding how this affects appraisals before listing a property can help avoid serious pricing mistakes.
Functional and External Obsolescence
Appraisers also evaluate factors known as functional (interior) and external obsolescence. These are conditions that may affect how a property compares to other homes in the area.
Examples may include:
• Outdated layouts or floor plans
• Features that differ from comparable homes
• Nearby influences that may affect value
For example, differences in ceiling height or interior layout can be considered forms of functional obsolescence. A home with 7-foot ceilings may be valued differently than a similar home with vaulted ceilings, even if the square footage appears similar.
Square footage discrepancies can also fall into this category when the property differs significantly from comparable homes used in the appraisal.
Appraisers also evaluate external obsolescence, which refers to outside influences that may affect value. A common example is a home located on a busy or main road, which may be compared differently than similar homes located on quieter interior streets.
Understanding these factors is important because they directly influence how appraisers adjust values when comparing properties.
Why Pricing Strategy Matters
Successful listings typically begin with a pricing strategy that considers both:
• Current market competition
• Recent comparable sales used in appraisals
Balancing these two perspectives helps ensure that the property attracts buyers while also remaining within a range that can be supported by an appraisal.
Understanding how appraisers determine value before pricing a home can prevent delays, renegotiations, and failed transactions later in the process.
Questions About Your Situation?
Every property and market situation is different.
If you're currently selling your home on your own and want to better understand how appraisers evaluate value, I’m always happy to share what I’m seeing in the local market.
Understanding the appraisal process before pricing a home can sometimes prevent costly surprises once a buyer is under contract.
Thomas J. Morillo
TJM Home Team