Whether your buying your first West Knoxville home or your fifth, there is a lot of terminology that comes with buying a West Knoxville. Two common terms that get thrown around when buying a West Knoxville home are market value and appraised value. These two terms are very critical when it comes to pricing a home because it must satisfy all parties involved. Unfortunately, with West Knoxville home prices rising, the market value and appraised value don’t always match. Here is a breakdown of each of the terms and why it is important for you to understand as a West Knoxville home buyer.
First, it is important to understand what market value is. Market value is the price agreed upon by a ready, willing, and able buyer and seller. In practice, market value for a West Knoxville home goes something like this: you find a home, you write an offer, the seller counters back a slightly higher price, and you accept the seller’s offer. Sometimes, it can be a little more complicated and there can be multiple buyers involved, but when it comes down to it, market value is the agreed upon price by both buyer and seller.
Once a buyer has an accepted offer on a West Knoxville home, they will work to secure financing to buy the home. This is where the appraised value comes into play. Obviously, a lender does not want to loan out more money than they need to on a West Knoxville home, which is why they do an appraisal. To determine the appraised value, an appraiser considers the location, how close the home is to schools, the size of the home and the lot, the condition of the home, along with what other homes in the area are selling for. With all of that information, they recommend a price to the lender.
If the appraised value is greater than or equal to the market value, then there are no issues with the two numbers. Unfortunately, if the appraisal comes in low, that can cause some issues. Appraised values can come in low for a few reasons, including multiple offers causing an artificially inflated price, overpricing by the seller, low comparables, or an inexperienced appraisal. Currently, with a lower inventory of West Knoxville homes on the market, it has become a bit more common for market values to be increasing than appraised values.
When the appraised value does come in low, both the buyer and seller have a few choices of how to proceed. First, when a West Knoxville home for sale has a low appraisal, an easy fix is to renegotiate the price. While some sellers may not want to lower the price, if they walk away from the sale, they could always receive a low appraisal when they find another buyer. Another option that a buyer can have is to make up the difference in cash. Lenders are only concerned with the loan-to-value ratio, so it the buyer makes up the difference it isn’t a big deal. Another option is that the buyer can find another lender, in hopes that they appraiser they use will come up with a different price. Finally, if there are no other options, both parties have the choice to walk away from the sale.
Are you thinking about buying a West Knoxville this year? Please let us know if there is anyway that Knoxville Home Team can assist you. Rick can be reached at 865-696-9002 or via email at [email protected]. Kati can be reached at [email protected]. Also, be sure to check out our West Knoxville Home Search Page.