The gap between home appraisals and sales prices is widening.
That’s according to a new report Corporate settlement solutions (CSS), The report analyzed the proportion of properties in 10 East Coast and Midwestern states where the assessed price was higher than the sales price and the average value was higher than the assessed value.
CSS’s analysis concluded that in the first half of 2024, 51% of sales in these states had assessed values above sales price. This is the largest share since the COVID-19 pandemic began in March 2020.
In 2020, 42% of properties were assessed for more than the sale price. In 2021, this proportion is 42%, in 2022, it is 46%, and in 2023, it is 50%.
A property is considered accurately appraised if these values fall within $2,500 of the sales price. Across the 10 states studied, just over 40% of transactions met this definition.
Importantly for buyers and sellers who are closing deals, only 8.4% of properties sold this year exceeded their assessed value. The average percentage value of underestimation is 7.3%. These transactions are relatively rare and can be compromised if terms have to be renegotiated because the appraisal is lower than the agreed-upon sales price.
“The growing gap between home appraisals and actual sales prices highlights the challenge 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 this will last, as many housing economists say home appreciation is normalizing and even declining in some markets. Inflection points like the one we may be approaching underscore the need for accurate, market-focused valuations importance of value.
States analyzed by CSS include Florida, Kentucky, Michigan, North Carolina, New Jersey, New York, Ohio, South Carolina, Virginia and West Virginia.
New York has the lowest overvaluation ratio of properties at 33.6%, and the overvaluation percentage value is only 4.6%. This shows that New York has the most accurate assessment among the 10 states analyzed. But New York also has the highest proportion of properties with an assessed value less than the sale price (14 percent).
Kentucky has the highest percentage of properties overvalued at 72.7%, but the percentage overvalued is only 9.7%, which is slightly higher than the average of the 10 states analyzed. The average low valuation in Kentucky is 4.9%
North Carolina had the highest percentage of overvaluation at a staggering 33.3%, with 58.7% of properties in the state being overvalued. The percentage of properties in Virginia that are overvalued is 68.6%, while the average percentage of overvalued properties is 10.7%. Virginia had the lowest percentage of properties sold for more than assessed value of the 10 states, at 2.9 percent.
