The gap between home appraisals and sale prices is rising.
That’s according to a new report from Corporate Settlement Solutions (CSS), which analyzed 10 states on the East Coast and Midwest for the share of properties that were appraised for more than the sale price, in addition to the average value over appraisal.
CSS’s analysis concluded that during the first half of 2024, 51% of sales in these states had appraised values that were higher than the sale price. That’s the largest share since the beginning of the COVID-19 pandemic in March 2020.
In 2020, 42% of properties were appraised for more than the sale price. This share was 42% in 2021, 46% in 2022 and 50% in 2023. The average percentage value of an over-appraised property in 2024 so far is 8.9%.
Properties were considered accurately appraised if these values fell within $2,500 of the sale price. Across the 10 states studied, slightly more than 40% of transactions met this definition.
Importantly for buyers and sellers who are striking deals, the percentage of properties sold this year for more than the appraised value is just 8.4%. The average percentage value of under-appraisal is 7.3%. These deals are relatively rare and can be jeopardized if terms have to be renegotiated due to an appraisal that comes in lower than the agreed-upon sale price.
“The growing gap between home appraisals and actual sale prices underscores the challenges of providing accurate valuations in a rapidly appreciating market with limited inventory,” CSS CEO Ashley Jelinek said in a statement.
“The big question is how long will this continue given that many housing economists are suggesting that home appreciation is normalizing and, in some markets, even decreasing. It is inflection points like the one we may be approaching that emphasize the importance of accurate, market-centric valuations.”
The states that CSS analyzed are Florida, Kentucky, Michigan, North Carolina, New Jersey, New York, Ohio, South Carolina, Virginia and West Virginia.
New York had the lowest percentage of over-appraised properties at 33.6%, and the percentage value of over-appraisals was a miniscule 4.6%. This suggests that New York has the most accurate appraisals of the 10 states analyzed. But New York also has the highest share of properties with an appraisal value below the sale price (14%).
Kentucky had the highest percentage of over-appraised properties at a whopping 72.7%, but the percentage value of over-appraisal was a modest 9.7%, just above the average for the 10 states analyzed. The average under-appraised value in Kentucky was 4.9%
North Carolina had the highest percentage value of over-appraisal at a somewhat shocking 33.3%, and 58.7% of properties in the state were over-appraised. Virginia‘s share of over-appraised properties over was 68.6%, while the average percentage value of over-appraisal there was 10.7%. Virginia’s share of properties sold for more than appraised value was the lowest of the 10 states at 2.9%.
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Source: housingwire.com