One step that sellers often overlook in the home selling process is the appraisal. You can hypothetically list your home for any asking price you want (of course that’s not the best strategy), but mortgage lenders will only approve buyers for the amount of the appraisal – and if it falls short of the agreed upon sales price, this could result in the purchase contract getting cancelled.
Understanding this concept will help you to grasp the importance of the appraisal when selling a home. It will also help you to make the right choices when pricing your home, as you’ll want to use the same information the appraiser will – market data, recent sales, comparable homes on the market – to determine the market value of your home.
What Does an Appraisal Involve?
A home appraisal, at its essence, is the process of determining how much a home is worth. The appraisal in a home sale is required by the lender (the buyer pays for it) and it is an essential step in the financing approval process. It is used to determine the fair market value of your home.
Whatever value is determined by the appraiser is the value that the lender will use to determine the loan amount that the buyer will be approved for. A licensed appraiser covers the entire property, including the house itself, the land, and any additional structures on the property. Factors that affect the appraisal include:
- Square Footage
- Number of Bedrooms
- Number of Bathrooms
- School District
- Home Interior Features
- Age of Home
- Unique Features
- Property Views
- Improvements or Upgrades
- Swimming Pools and Landscaping
If you fail to make repairs or improvements to your property or fail to point out upgrades and improvements to the appraiser, it could result in a low appraisal. Prospective buyers will use a home inspector to take a look at the property as well. It’s important to note that inspections and appraisals are two different processes, conducted for different reasons.
Different Types of Appraisals
There are four basic types of appraisals. Though most appraisers will use a comparison analysis appraisal, it is still good to know the different types to make sure that they’ll be using the right approach:
- Comparison Analysis Appraisal – Used to assess home values based on local neighborhood sales and uses the most current data
- Walkthrough Appraisal – In-depth appraisal where pictures are taken and the home is appraised from top to bottom and inside and out
- Tax Appraisal – Least useful for home value assessment as records are only updated annually
- “Drive-By” Appraisal – A quick snap analysis of the general value of the home, particularly noting the home exterior and surrounding area
Preparing for an Appraisal
Preparing for an appraisal is a lot like staging for an open house. In fact, if you approach the appraisal the same way, you can maximize the reported value of your home. Remember as well that most buyers are more interested in buying a move-in ready home.
An appraiser is different from an inspector. They are interested in the nuts and bolts of your home; its best features and how it compares to others.
- Clean the House
- Make Repairs and Upgrades
- Paint the Exterior
- Trim Landscaping and Drive
- Improve Curb Appeal
In most cases, the buyer’s lender will select the appraiser. However, if you’re doing an independent appraisal, the decision on which appraiser to go with has lasting repercussions. Make sure to shop around before deciding on an appraiser – and make sure that whoever you choose is on the lender’s list of approved appraisers. Ask questions about the data that they will use to appraise your home:
- Are they working from this year’s statistics?
- What are some of the market conditions that affect pricing?
- How many sources does your appraiser reference?
- How thorough will the appraisal be?
- Is the appraiser familiar with homes in your neighborhood?
Too many sellers only realize the weight of the appraisal when it is too late. Don’t be caught off guard. Contact Premiere Properties to learn more about the importance of the appraisal and how to successfully navigate the process.