altWith interest rates hitting an all-time low this year, many homeowners are refinancing their mortgages – which is a great way to lower monthly payments or reduce the amount of years on a mortgage.  As part of the refinancing process, banks must appraise the value of the home. This sometimes presents a concern from homeowners who are unfamiliar with how the appraised value differs from the market value.

An appraisal is a professional opinion of value based on market data – typically, home sales with similar square footage that have sold within a half-mile in the last six months. The bank requires that an appraisal be done to confirm they are making a wise investment in funding the mortgage.

Usually, an appraiser will visit a home, take photos, measure the square footage, then compare the home to what was recently sold. Occasionally, I hear of drive-by appraisals, whereby appraisers merely evaluate the home and the surrounding area from the exterior. 

Homeowners frequently express concern about the appraised value determined during a refinance, particularly if the appraised value is the same or lower than their purchase price from a few years ago, or nowhere near their purchase price plus the amount they have paid on improvements.  It seems to make sense that the refinance appraisals are conservative to protect the bank’s investment. The positive news, especially here in the Highlands and surrounding areas, is that the appraised value obtained through a refinance and the market value are not always the same.
Market value is the probable price a buyer is willing to pay for a home, under normal conditions in an open market. Recent improvements to a kitchen and/or bathroom, exceptional renovations throughout a home, desirable lots or locations, a rare style of home in a certain area – all are factors that may justify differences in the appraisal value and what an actual buyer will pay for a home. 

On the flip side, if the appraiser uses comparable homes that sold at the high end because they had been thoroughly renovated, were in move-in condition, or had an outstanding layout, lot or location, and your house does not share those same attributes, the appraisals can occasionally come in higher than what the market is willing to pay.  Highlands-area properties are anything but cookie-cutter, making it difficult to know for certain what the market can bear. 

If you’re not thinking about selling your home for many years, there is no need to concern yourself with a recent appraisal.  However, if you are considering selling in the next year or so, call an experienced realtor who has first-hand knowledge of your neighborhood to provide their expertise about active, pending, expired and sold homes in your area. Most realtors will provide a free competitive market analysis, which will give you insight about your appraisal as well as a ballpark estimate on the current market value of your home.

Kristin Lally is a full-time professional realtor with eight years experience, and is associated with RE/MAX Metro at Douglass Loop. Though the Highlands has been her home since 1998, Lally has successfully helped buyers and sellers all over Louisville and in surrounding counties. She can be reached at (502) 797-4401.