Educating relocating employees what to expect and how to understand the different types of appraisals in a home sale program can help reduce unnecessary complications and frustrations felt by relocating employees.
Relocation appraisals are an effective and consistent component in home sale programs, typically used to determine a company’s Guaranteed Buy Out value or to base a homeowner’s list price.
Homeowners, however, tend to be surprised by the appraised value, as there can be a significant difference in value from bank appraisals performed during a refinance, for example. The relocation appraisal is an essential component of the relocation process, and transferees – as well as corporate clients – need to understand the differences in the types of appraisals.
Simply stated, the relocation appraisal is based on an anticipated sale of the property during a defined, reasonable marketing period and the analysis considers what market trends and conditions may impact the property while it is exposed for sale.
A Mortgage Appraisal
On the other hand the mortgage appraisal is based only on a retrospective analysis of past sales transactions and reflects normal market conditions. While the procedures followed in each type of appraisal are similar, an appraisal to facilitate corporate relocation must reflect “anticipated sales price,” not “market value.”
When reviewing the list of comparable sales, homeowners often don’t realize that short sales and foreclosed properties may be considered if they are relatively close in proximity to the employee’s home. These types of sales can significantly impact the “anticipated sales price” of the employee’s home, as the typical buyer could expect to pay less than what the employee considers “market value” for his home.
Not only are current market conditions considered for determining the appraised value of the employee’s home, but forecasting also plays a role in determining the value.
Forecasting is defined as the process of analyzing historical trends and current factors as a basis for anticipating market trends. It is one of the components of the definition of “anticipated sales price,” and therefore, part of the analysis in every relocation appraisal.
These trends include such factors as supply and demand characteristics, days on the market, interest rates, seasonal market influences, new construction competition, REO competition, withdrawn and expired listings, demographic trends, pending sales, sales-to-list price ratios, absorption rate analysis and mood of the market.
The forecasting analysis considers the impact these trends will have on the property during its market exposure period, and a forecasting adjustment is applied to reflect the result of this analysis on the property’s marketing time and sales price.
For information or questions about this blog post please contact Stefanie Schreck, Lexicon Consulting Services, +1 904.394.3763 or via email at firstname.lastname@example.org.