What is a Home Appraisal?
If you are getting a loan on the home you are trying to buy, the bank will require an appraisal to protect their interests. If you walk away from this home, will they be able to get their money back in a foreclosure sale?
The bank will send a certified appraiser who will first study the subject house and then compare it to other, recent and nearby homes that have sold. The goal is to find a home sale (comparable) that is recent and nearly identical.
Identical? My home is unique!
And therein lies the problem. An appraiser must make “adjustments” to account for the differences. The rules around those adjustments have changed dramatically after the collapse of 2008. A comparable home needs to be as similar as possible to your home in size, room count, improvements, lot size and attributes (like view) and time. If a home sold more than six months ago an appraiser will not use it.
Home Appraisers are people and a home appraisal report is still subjective
There is no scientific formula for appraising your home. The home appraiser has guidelines and rules, but at the end of the day, an appraiser often must use their experience and judgment.
There are a number of best practices that can help sway your home appraisal in your home’s favor.
Consider the home appraisal before you go on the market
Know your comparable sales and understand how an appraiser will value your house based on them. In a hot seller’s market, it is possible to sell a home for more than anticipated appraised value.
Negotiate the home appraisal when you get an offer
Negotiate your contract with an eye toward probable appraisal value. The best time to handle potential appraisal problems is during contract negotiation. Once you get into escrow, people establish “positions” and it is much harder to get people to accept a different price.
An experienced listing agent can innoculate you from the risk of losing a buyer or losing a lot of money due to a low appraisal. They have several different ways to pre-negotiate a solution in advance.
Maximize the home appraisal appointment
Home appraisers are people, too. On the home appraisal day, prepare your home for the showing of its life – lights on, music soft, candles lit.
Make sure your agent has a complete list of major improvements. I always meet the appraiser and provide the improvement list plus an annotated list of comparables. I comment on factors that are hard to know if you did not visit the comparable in question: view, floor plan, aesthetics, neighbors. I also try to find out if there is “inside information” on those other sales. Were there multiple offers? Was the seller under unusual stress? Did the buyer give something in addition to price (all cash, paid the seller’s closing costs the buyer was a Realtor and reduced the price of the home in lieu of a commission)
If the appraisal report is low
Here are your options:
- Ask for another appraisal or challenge the existing one
- Seller reduces the sales price
- Buyer comes up with more cash, if the lender requires it.
- A combination of 1 and 2
- The buyer does not remove the appraisal contingency and everyone walks away from the deal
Get an experienced listing agent
An experienced listing agent has been through several up and down markets. We know how to solve problems before they ever come up and we can smooth the path, even when the road is bumpy. Find out what it’s like to Sell With DIGGS or contact us direct.