Home Appraisals
September 1, 2022
If you have ever bought or sold a home, you probably know how important an appraisal is in the homebuying process. It is crucial to have an unbiased third-party professional examine the home to provide an assessment of the property’s value, as this signals to the mortgage lender how much they are able to lend to the borrower. The borrower is typically responsible for paying for the appraisal, which is around $300-$500 for a single-family home. This is not to be confused with a home inspection. The primary difference is that an appraisal is done to determine the home’s value, while an inspection is done to summarize the condition of the home.
What does the appraiser examine and what does he/she do?
The appraiser looks at the size of the property, the condition of both the interior and exterior, and any home improvements and renovations that have been done to the home. Specifically, they examine the total number of rooms, the condition and age of the plumbing, electrical, and HVAC systems, the location, the functionality of the layout, and amenities such as garages, decks, porches, pools, etc. Aside from their work at the property, the appraiser also researches comparable homes that have recently sold in the area and prepares a report that typically includes the home’s size and condition, a summary of serious structural issues, and photographs, sketches, and maps of the property. Appraisers usually spend about 30 minutes to a few hours at a home, depending on the size and condition.
How can you prepare for an appraisal as a seller?
The best way to prepare for an appraisal is to imagine yourself as the appraiser. What would stand out if you were in their shoes? Research comparable homes that have recently sold nearby and take note of what they did to maximize the value of their homes. Also, review previous appraisals to see what stood out about the home when it was examined in the past. Start with the areas that need the most attention and make sure you remove clutter and clean thoroughly. Make the exterior colorful and inviting by adding inexpensive annual flowers. Additionally, it never hurts to let the appraiser know the selling points of the neighborhood and which upgrades have recently been made to the home.
What hurts a home appraisal?
When you are selling a home to someone who needs a mortgage to purchase the property, you do not want the appraisal to come back much lower than the asking price, as the buyer will need to come up with the difference. Therefore, in addition to knowing what helps a home appraisal, you should also know what hurts a home appraisal. A few obvious reasons include deferred maintenance, dated or undesirable finishes, failing to disclose needed repairs, market conditions, and appraiser experience. One less obvious reason could be that comparable “outlier” properties were recently sold nearby. This could include homes sold to relatives at a discount, under duress, or foreclosures.
What if you disagree with the appraisal?
If you disagree with the appraisal, you can write a letter to the lender or appraisal management company (AMC), but it is unlikely the appraiser will change their mind unless there is strong evidence the appraisal is inaccurate. For example, if the square footage or room count are incorrect, or an amenity like a pool is disregarded, those would be valid reasons to disagree with the appraisal and to write a letter.
What to do if a home is appraised for less than your offer price
There are a few ways you can respond if the home you put an offer on receives an appraisal lower than your offer price. If you have the resources, one option is to increase the amount of your down payment. Another option is to renegotiate the price with the seller. This scenario is unlikely when the market benefits sellers, especially when they receive multiple competitive offers, but it never hurts to ask. A third option is to back out of the deal if there is an appraisal contingency in place.
Appraisals can have a significant impact on contract negotiations. Buyers should have a solid understanding of how much a home is worth and how much they can afford, especially in terms of a down payment, before making an offer on a home. This will help the process go much more smoothly if the home appraises for less than the offer. Additionally, when reviewing offers from potential homebuyers, sellers should consider both the offer and the likeliness that the home will appraise for an amount close to the offer.