Why My House Appraised for $75,000 Less Than My Neighbor's House

In our last post, the question was, "My neighbor's house sold for $650K but you appraised mine for only $575K, what's up?" The discussion explained that appraised values are primarily determined by physical similarities and differences between your home and comparable properties, as well as existing market factors. A list of examples of physical differences and possible market differences were described.

So, your neighbor's house sold for more than yours was appraised for. In fact, it was a $75K difference. The two houses were built about the same time and the site or lot sizes are similar. Your house includes a two-car garage and two bathrooms. The kitchen and bathrooms have not not had any significant upgrading or remodeling since new. Relative to your house, your neighbor's house is 150 square feet larger; includes an extra garage stall and extra half-bathroom. The kitchen and bathrooms were remodeled last year with higher end materials. In addition to physical differences in the two houses, the new buyer paid cash and was highly motivated to buy into this specific neighborhood due to the high quality schools.

How does the above scenario explain the $75,000 difference in what you neighbor's house sold for and what yours currently appraised for? Let's start with the physical differences. The following scenario is fictional as adjustments vary from appraisal to appraisal based on the current market. However, in this case, the 150 square foot difference calls for a $9,000 adjustment. The neighbor's additional garage stall and extra half-bathroom call for $10,000 adjustments each. The neighbor's house includes a remodeled kitchen and bathrooms. The overall condition of the neighbor's house was found to be superior to yours for a $35,000 adjustment. At this point, on paper, your house would adjust to about $64,000 less than your neighbor's house.

Finally, as stated, the new buyer of your neighbor's house was highly motivated and paid above market value with an all cash deal. An all cash deal would not require an appraisal for mortgage lending purposes, therefore, a buyer may pay above market value as a lender is not involved. In this case, the new buyer paid about $11,000 over market value.

After analyzing all of the comparables and making appropriate adjustments to each, in the above scenario, it is easy to see how your house could appraise for $75.000 less than your neighbor's house. The above scenario shows just a few of the several adjustments that an appraiser may make in an appraisal report. In looking at comparables, there can be positive and/or negative adjustments to each, relative to your house. After making all necessary adjustments to each comparable, the appraiser then reconciles all of the information and adjusted values of the comparables and determines the market value.