Selling a Home
Unlike the market value, the appraisal value of your property is not necessarily the price it will be bought or sold for. Rather, it is a guideline in the selling or buying process. The appraised value of your property describes the determination of an exact number regarding your property’s value. Appraised values are based on gathered data and the judgment of the professional conducting the appraisal, rather than the market.
Your property appraisal can only be conducted by a certified or licensed appraiser. If the market value is calculated by a real estate agent, the report might include other active property listings, pending property sales, sold properties in the last year and expired listings. In contrast, an appraiser performs the service of determining your property’s appraised value and does not represent your interests regarding the property. Once complete, the appraiser will provide you with a report that should be written in a clear format, allowing you to follow the appraiser’s determination.
When the appraiser comes to your home, don’t have your dog out barking and snipping to lunge and smell the stranger. This can put off would-be appraisers, which can impact the value they provide although, technically they say it shouldn’t. At the very least it can be distracting from the value the appraiser is looking for. You’ll also want to make sure that the appraiser can access everything they will need in order to give a fair and honest assessment. Move clutter and make sure rooms and doorways aren’t blocked.
Don’t interfere with the appraiser with questions and comments while they are in your home. Instead, simply be prepared to answer any of their questions and, if you do have concerns or queries, wait until they’ve completed their inspection. This will keep them focused on the details of your home, instead of your questions. At the end of the appraisal, if you think they’ve overlooked someone, then you can point it out.
What Appraisers Look For
The value the appraiser gives your home largely depends on the recent prices of comparable properties. All the same, you’re mistaken if you think you can’t do anything to help your home come in at the high end of its potential appraisal value. Getting your home appraised is similar to going on a first date—while you have no idea if your partner will like you, being well-groomed substantially improves your chances of being deemed attractive. Your property should be neat and clean, uncluttered, and easy to inspect. Any pets should be contained and smell masked. You don’t want the appraiser to be rushed to get out.
Appraisers look at basic things like exterior and interior condition and total room count. They also note recent renovations to kitchens and baths, windows, the roof, and the home’s systems—heating, electrical, and plumbing—that make the home more up to date, functional, and liveable by today’s standards. They’ll also go behind to walls to look at the condition of the home’s plumbing, electrical, and HVAC systems. Other factors such as detached garages, decks, and porches will be recorded as well. Pools and hot tubs are known to add to a home’s value as well as a great location. Unappealing features are also noted, such as an exterior appearance that’s inconsistent with the rest of the neighborhood. It is also a good idea to point out features that may not be immediately apparent that could potentially add to the appraiser’s opinion of value.
How Values Are Determined
Because the appraisal primarily protects the lender’s interests, the lender will usually order the appraisal. An appraisal costs several hundred dollars and, generally, the borrower pays this fee. A qualified appraiser should be licensed or certified—as required in the United States—and be familiar with the local area. Per federal regulations, the appraiser must be impartial and have no direct or indirect interest in the transaction.
A property’s appraisal value is influenced by recent sales of similar properties and by current market trends. The home’s amenities, the number of bedrooms and bathrooms, floor plan functionality, and square footage are also key factors in assessing the home’s value. The appraiser must do a complete visual inspection of the interior and exterior and note any conditions that adversely affect the property’s value, such as needed repairs.
Typically, appraisers use the Uniform Residential Appraisal Report from Fannie Mae for single-family homes. The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales. The appraiser then provides a detailed analysis and conclusions about the property’s value based on their observations.
Every appraisal report must include certain information. This includes a street map showing the appraised property and comparable sales used, an exterior building sketch and an explanation of how the square footage was calculated. There should also be photographs of the home’s front, back, and street scene and front exterior photographs of each comparable property used. Your appraiser will have a specific checklist of items they must appraise and proof that it was appraised. Other important information that must be included in the report is market sales data, public land records, and public tax records. The appraiser will use all of these required information to determine the property’s fair market value.
What Your Options are After Your Appraisal
When everything goes smoothly, the home appraisal is just another box to check on a closing checklist. When the appraisal value is lower than expected, the transaction can be delayed or even canceled. As a seller, a low appraisal, if accurate, means you may have to lower your home’s price to get it sold. Holding out for an all-cash buyer who doesn’t require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price. No one wants to overpay for a home.
If your surrounding area has experienced recent distressed sales, that can lower your home’s appraisal value and you will likely have to reset your selling expectations. If you feel that your home’s value has been dragged down by the sale price of nearby foreclosures and short sales, you may be able to convince the appraiser that your home is worth more if it’s in significantly better condition than those properties. Talk to your seller’s agent about what steps you can take, they’ll likely know what is possible and what is a waste of time.
Pursuing a Second Opinion
Sometimes the appraiser’s value is not only lower than you’d like it to be but lower than you think your home is worth. That being said, an appraisal is just one person’s opinion. While this is a trained and educated opinion, as with all professions, there are good and bad practitioners.
If you don’t like the value of the appraisal, you can speak with your seller’s agent about writing a letter of appeal to the lender, but the chance of an appraiser changing their opinion is very slim unless you have overwhelming evidence that the value is off. Your appeal will only succeed if you can show that the appraiser made a significant error, such as listing the square footage or room count incorrectly or that that they disregarded an important amenity such as a pool or spa. The best plan for the appraisal you want is being prepared before the appraiser comes to look at your property.
What Refinancing Homeowners Need to Know
If you’re refinancing a conventional mortgage, a low appraisal can prevent you from doing so. The home needs to appraise at, or above, the amount you want to refinance for your loan to be approved. However, if your existing mortgage is an Federal Housing Administration (FHA) mortgage, you can refinance without an appraisal through the FHA Streamline program. This is a great option for underwater homeowners.