Courtesy of Bart Everson

Courtesy of Bart Everson

With the housing market on the rebound after a rough few years, homeowners are now starting to think more and more about putting their home up for sale. After the economic downturn and the housing bubble collapse, home prices plummeted. Foreclosures skyrocketed and sent the price of comparable homes lower and lower.

In the last couple of years home prices have risen steadily, moving the market from a buyer’s paradise to a more even field where sellers can also get what they want. In February 2012, the median sale price of a U.S. home was just $152,000, the lowest it has been in the last 5 years. In May of this year, prices continued to push higher, with the median home sale price reaching a new high of $215,000, Zillow Home Values. Other data sources give a slightly different picture of the housing market. The National Association of Realtors (NAR) said the median price of a house sold in May was $228,700, which is only a little less than the July 2006 highest monthly median home price ever recorded of $230,400.

With prices at their highest in more than 5 years, sellers are watching the value of their homes increase as more buyers are taking advantage of the still low mortgage rates… at least until the Federal Open Market Committee (FOMC) likely raises interest rates later on this year, as Janet Yellen so delicately signaled in her most recent Federal Reserve Press Conference.

However, the actual values of homes are not being viewed equally by owners and appraisers. The disparity has been increasing this year, with May being the fourth consecutive month that appraisers and homeowners have valued homes differently. Appraisers valued homes 1.5% lower than homeowners did, according to Quicken Loans’ Home Price Perception Index.

These differences in appraisers’ and homeowners’ perceptions of value have important implications to the housing market. For those of us who may be interested in pulling some of the equity out of our residential or commercial properties, these different perceptions of value mean that, with lenders relying on appraisers’ opinions of value in determining the current value of your property, they will be able to lend homeowners less equity. Not in all cases, but the typical home equity line of credit (HELOC) allows a lender to lend up to 80% of the value of the home, as determined by an appraisal. This is also known as a loan-to-value (LTV) ratio of 80.

Appraiser Homeowner Difference
Home Value $200,000 $225,000 12.5%
Lender Max LTV 0.80 0.80 NA
Max HELOC $160,000 $180,000 12.5%


As the table above shows, appraiser and homeowner differences in perceptions of home value have clear implications for the amount of equity that can be borrowed. This table shows that a $25,000 difference in appraiser and homeowner perceptions of value means that the lender can only allow the borrower to borrow $160,000 in equity instead of $180,000 based on the homeowner’s perception of value. This could mean the difference in buying a really nice boat or just a nice boat, as one of my friends did recently with his HELOC.