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Homeowners And Appraisers Differ By Less Than 1% On Home Values

Kevin Graham3-Minute Read
October 15, 2020

Homeowners underestimated the value of their home by an aggregated average of 0.77% nationwide in September, matching the gap between homeowners and appraisers in August.

That's the conclusion we draw from the data in Rocket Companies’ analysis of appraisal data in comparison to homeowner estimates. There’s so much more, but before we get there, let’s take a moment to talk about why this matters and show our work.

Why You Should Care About Perceptions Of Home Value

Rocket Companies’ Home Price Perception Index (HPPI) is intended to give homeowners a better idea of the way their estimates of home value square with those of the actual appraisers who have to assign a value to a home when it comes time to get a mortgage.

It’s important for homeowners to have an accurate understanding of their home value because qualifying to refinance can be based in large part on the amount of equity you have in your home, which is impacted by the monthly payments that you make, but is also affected by your home value.

The more your home value has risen since you brought it, the more equity you have in the home based on value alone. This is why lenders will ask for your home value estimate when you apply to refinance. It gives them a baseline to determine what you might qualify for.

The closer homeowners and appraisers are in terms of their opinions, the better. It helps avoid surprises. It might seem OK when values are underestimated, but imagine the reverse.

If your appraisal comes back lower than you anticipate, you could end up having to work with your lender to restructure your loan or bring more money to the closing table. Both of these scenarios could compromise your ability to accomplish the goals you set out when applying to refinance.

Methodology

Since this is the first time we’ve done this report in a while, it’s probably a good idea to explain how we come to our numbers.

For each of our refinance transactions, we get an estimated value from a client on what they think their home is worth at that moment in time. We also get the opinion of an independent appraiser.

After that, it’s a matter of plugging numbers into a relatively simple formula.

(Appraised Value - Homeowner’s Estimated Value) / (Appraised Value)

In order to aggregate the data for a national composite, on a regional basis and finally across 27 metro areas, we add up the appraised values and homeowner estimates in the areas being analyzed in order to compute the same formula.

Home Price Perception Index (HPPI)

home value chart

Enough formula explanation. This isn’t an Algebra II class. What does the data actually tell us? I suppose you’ve waited long enough.

To begin with, there’s the 0.77% underestimate of appraised value at the national level, but this trend also holds for each of the four major geographic regions of the U.S.

In the Midwest, appraised values came in 1.01% higher than homeowner estimates, which is up from a 0.8% underestimate in August. In the Northeast, values were 0.92% higher in September, compared to being 0.81% higher last month.

In the West, values were 0.9% higher as compared with 0.59% underestimated in August. Finally, Southern home values came in 0.8% higher than expectations compared with 0.76% in August.

The regional data is all the more surprising given that in September of last year, the same data showed that homeowners were overestimating home value by around 0.5% overall.

Quicken Loans®1 Executive Vice President of Capital Markets Bill Banfield said that the level of agreement between appraisers and homeowners is really quite remarkable.

"We've seen estimations of home value come in anywhere between 0.5% – 1% of where appraisers put actual values for quite a while now," Banfield said. "This really points to how tuned in homeowners are to the value of their homes, which makes the mortgage process go that much more smoothly.”

home value map

At a metro level, all 27 areas looked at showed homeowner estimates that came in under appraised values. The closest to actual value was Sacramento, California, where estimates came in just 0.05% high. Meanwhile, Kansas City, Missouri was the most underestimated metro area with appraisals coming in 1.45% above homeowner expectations.

This is just another data point that backs up the continuing strength of the housing market, even as other parts of the economy have struggled in the wake of COVID-19. Combine this with rates being as low as they are, and homeowners are well-positioned to take advantage of the equity in their homes.

If you’re looking at these values as a homeowner and licking your chops to refinance, you certainly couldn’t be blamed. On the other hand, maybe you want to buy before values rise further. If you’re ready, you can get started online with Rocket Mortgage®.

1 Quicken Loans® and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rock Holdings Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable legal and regulatory requirements.

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Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Companies, he freelanced for various newspapers in the Metro Detroit area.