What Sellers Should Know About the Home Appraisal
Once your home is under contract, the appraisal may become an important part of the buyer’s financing process.
For many financed purchases, the lender obtains an appraisal to help determine whether the property provides adequate collateral for the loan. The appraised value doesn’t determine what your home must sell for, but if it comes in below the agreed-upon purchase price, it can affect the buyer’s financing and potentially the transaction. Some eligible loans may receive an appraisal waiver or other valuation alternative instead.
Here’s what sellers should understand before the appraiser arrives.
What Is a Home Appraisal?
A home appraisal is an independent professional opinion of a property’s market value.
The appraiser considers the characteristics and condition of the home along with factors such as location, market conditions and recent comparable sales.
The appraisal is different from the price we establish when listing your home. It’s also different from the price a buyer ultimately agrees to pay.
Those numbers can be the same, but they don’t have to be.
What Does an Appraiser Look At?
The appraiser may consider factors including:
- Square footage and overall design
- Number of bedrooms and bathrooms
- Property condition
- Location and views
- Features such as a pool
- Recent comparable sales
- Current market conditions
The goal is an independent, objective opinion of market value.
How Should Sellers Prepare for an Appraisal?
You don’t need to remodel your home for the appraiser.
If we’ve already prepared the property properly for the market, much of the work has probably already been done.
Before the appraisal, I want the home accessible and presentable and any important improvements or features documented.
I can also provide relevant information about the property and comparable sales when appropriate. The purpose isn’t to pressure the appraiser. Appraiser independence rules are very strict. It’s about making sure useful, factual information about the property is available.
Does a Clean House Appraise for More?
Not simply because it’s clean.
An appraiser isn’t evaluating your housekeeping.
However, the overall condition and maintenance of the property can be relevant to the valuation. That’s different from assuming fresh flowers, a spotless kitchen or a perfectly made bed will somehow increase the appraised value.
That’s one reason I wouldn’t have you running around before the appraisal as though we’re preparing for another open house.
What Happens if the Appraisal Comes in Low?
This is usually the part sellers are most concerned about.
If the appraised value is below the purchase price, it doesn’t automatically mean the transaction is over or that you must reduce your price.
What happens next depends on the purchase contract, the buyer’s financing and the circumstances of the transaction.
Potential options may include renegotiating the price, the buyer contributing additional funds, or addressing concerns about the appraisal through the lender’s reconsideration-of-value process when there is a legitimate basis to do so.
This is also where the terms negotiated in the original offer become especially important.
Can an Appraisal Be Challenged?
There is a process for raising concerns about an appraisal.
If there appears to be incorrect property information, missing information or other material issues with the report, the appraisal can be reviewed and a reconsideration of value may be requested through the lender.
That doesn’t mean we simply ask for another appraisal because we don’t like the number. Requests for changes need to be based on substantive issues, and the lender has responsibilities for reviewing and resolving appraisal concerns.
Appraisal vs. Home Inspection
These two are easy to confuse, but they serve very different purposes.
An appraisal provides an opinion of the property’s market value, generally for the lender’s underwriting of the loan.
A home inspection is focused on the property’s physical condition and helps the buyer better understand the home and its systems.
An appraisal isn’t a substitute for a home inspection.
The Appraisal Starts With the Listing Strategy
One of the best ways to prepare for the appraisal actually happens before your home ever goes on the market.
When I recommend a listing price, I’m looking at recent comparable sales, current competition, the condition of your home and what buyers are doing in the market.
An offer significantly above recent comparable sales can be exciting, but the terms of that offer matter too, particularly when financing and an appraisal are involved.
That’s why I don’t look at an offer based solely on the number at the top of the page.
Understanding how the financing, appraisal terms, contingencies and other conditions work together helps us evaluate the strength of the entire offer.
