Based in Cleveland Business settlement solutions (CSS) released an analysis Thursday that highlights a growing gap between appraised home values and sales prices. In the 19 East Coast and Midwest states where CSS operates, appraisals exceeded sales prices in 57% of transactions in the second half of 2024.
That share has increased from 53% in the second half of 2023 and 51% in the first half of 2024. Real estate is considered “overvalued” if the appraised value is $2,500 or more than the sales price. Conversely, they are considered “undervalued” if the sales price is $2,500 or more than the appraised value.
“Over the past four years, home prices have increased significantly in many markets, but recently the pace of growth has begun to slow. These are just two of the challenges appraisers face in today’s mortgage market,” said Ashley Jelinek, CEO of CSS, in a statement.
“We launched our Appraisal Price-Gap Analysis last year to help the market as a whole understand the delta between appraisals and sales prices. Accurate, market-driven valuations are key to a healthy mortgage market, so it will be interesting to see how well-appraised values align with market-driven sales prices in 2025 as the housing market continues to find its new normal.”
According to the most recent data of the S&P CoreLogic Case-Shiller Home Price Index: US home prices rose 3.6% year-over-year in October 2024. That’s down from a three-year average growth rate of 5.8% and a five-year average growth rate of 8.9%.
From July to December last year, 57% of the valuations carried out by CSS were higher than the sales price. Another 36% fell within $2,500 of the sales price, meaning they were neither undervalued nor overvalued. Only 8% were considered undervalued, compared to 12% in the second half of 2023.
Undervaluations are relatively rare and can disrupt a real estate transaction if the buyer and seller have to renegotiate the sales price, or if the buyer has to come up with more cash to complete the transaction.
CSS noted that the average overvaluation in these states was 4% higher than the sales price, while the average undervaluation was 6%. The share of homes that are undervalued has fallen from 8%, while the share that is overvalued has remained unchanged compared to the second half of 2023.
Of the states in the CSS footprint, Pennsylvania had the highest share of properties with overvalued values at 76%. It was followed by Kentucky (63%), Virginia (61%), West Virginia (60%) and Florida (55%). On the other end of the spectrum, in New Jersey, only 38% of properties were overvalued.
Undervaluation was most common in Indiana, where it occurred in 17% of transactions with an average undervaluation of 6%. Pennsylvania and Florida each had a 10% share of undervaluation. In Virginia, however, virtually none of the appraisals completed in the second half of 2024 were considered undervalued.
