Whenever I have a listing appointment with a potential client, I will go through great detail of recent home sales comparable to the one for which I’m trying to set a value. After this detailed analysis, it is not uncommon for the client to be surprised at the sales price I have derived, and it’s not a happy surprise.

Shocked, they will say something like, “We just got a home equity loan and it is much higher than what you are telling us.” That’s not surprising to me because home equity loan appraisals are not equal to the true value of a home.

For example, I may determine a home will sell for $400,000. The surprised client will inform me that it was appraised for a home equity loan at $450,000. However, I concluded the home is valued at $400,000 based on several homes in the area with the same criteria and those homes sold for $380,000 to $410,000.

What is the difference between the value I have derived and the size of the home equity loan? The answer is easy – it’s your job.

Are you a professional that is likely to remain employed? Do you have good credit? These are among the things that a home equity lender will consider in addition to the value of the property. In the scenario above, if they were loaning you the money based solely on the value of the home, the loan amount would not exceed $400,000.

Let’s take the example further. If the client is only asking for a $35,000 home equity loan, the strength of their job and their credit makes it worthwhile for the lender to take the risk for $35,000, but it would not be worth the risk for a new home purchase of $450,000. The $35,000 is simply the risk by the bank that you will maintain your income and pay your mortgage each month.

It is important to remember that unless you are putting 20{6823ff9777938b58e5be816e102fe5834d399a149a10e63bb255bc5cf9cea7ae} or more down on a home that someone else is going to insure your loan, not the bank. Therefore, the bank will not lend an amount higher than the comparable selling price of other homes.

I frequently advise clients, especially of larger homes, to spend $350 to have an appraiser evaluate their home’s value.

A recent client thought their home was worth $435,000, based on the amount of their home equity loan, but I told them I thought it would sell somewhere between $375,000 and $390,000. They hired an appraiser who said the high-end value would be $390,000.

Remember, true market value is based on the recent (past six months) sales price of similar homes in your neighborhood. It is not based on the size of your home equity loan and not necessarily the list price of other homes in your neighborhood (they have not sold and therefore the comparison is meaningless). You can save yourself $350 on an appraisal by heeding my advice.

When you do decide to sell your home, pick a real estate agent who will show you a true comparison to what has been recently sold.