“What Will Buyers Pay?” vs. “What Value Does a Bank Need to Refinance the Current Mortgage?”
[Editor’s Note: The views expressed here are solely those of Ross Kaplan, and do not represent Edina Realty, Berkshire Hathaway, or any other entity referenced.]
If you’re an appraiser or mortgage lender, stop reading now.
No? Good.
One of the things good Realtors do (gratis, of course) is to help clients trying to refinance their mortgage.
The homeowner’s goal: lower their interest rate and/or possibly even free up some cash for other uses.
Double Standard? Different Goals
When that’s the case, I look for the Comp’s (“Comparable Sold Properties”) that support the highest possible valuation.
That’s critical, because — depending on the owner’s equity (or lack thereof) — the bank may simply say “no, thanks.”
By contrast, when I try to determine fair market value for a prospective Seller, my goal is to estimate what Buyers are likely to pay.
Surprise, surprise, that’s often a more conservative (read, lower) number.
The takeaway?
It’s not fair market value unless someone’s willing to pay you that.**
Would-be Sellers who overshoot what the Comp’s objectively suggest are likely to sit on the market — and their agents will be wasting their time and marketing dollars.
**Also my response when homeowners — brandishing their tax assessed value, Zestimate, or yes, recent appraisal — protest what they believe is a too-low price.
See also, “Why Realtors Hate Zillow.”
