Understanding Appraisals

Whether you’re looking to buy, sell or refinance, a home appraisal is likely going to be part of the process.

What Is A Home Appraisal?

A home appraisal is a process through which a real estate appraiser (picked by the buyer's lender in most cases) determines the fair market value of a home. The appraisal ensures a buyer is not over-paying for a home and it ensures to the lender they are not over-lending on the home.  (Over-lending & bad lending practices is what caused the housing crash of 2008)

  • Buyer's Perspective:  If you need a mortgage to buy a home, we suggest that you include an appraisal contingency via the third party financing addendum in the sales contract. The appraisal contingency lets you walk away from a home purchase if the appraisal comes in too low to justify the agreed-upon purchase price.  However, in some strong seller’s market situations, you may be asked to eliminate any appraisal contingency.  At that point you have to judge whether you want to move forward with the purchase.  
  • Seller's Perspective:  In most cases, your buyer is using financing to purchase a home.  In almost all cases, there will be an appraisal involved.  In some cases the appraiser will need access to your home for about an hour (to take notes and pictures) and in some cases they do the appraisal via their computer using only online data and do not need to visit the property.  Negotiations tend to happen 3 times during a transaction:  when executing an offer, after inspections, and after the appraisal IF the value comes in low.  In strong seller’s markets you can push for the buyer to pay the difference, however, in a buyer’s market or even balanced market, it is uncommon for a buyer to pay more than appraisal value.  

When Is the Appraisal Performed?  The appraisal is typically performed after inspections and after the buyer has finalized their personal underwriting with the lender.  This basically means they have gone one step further than the pre-approval and the lender feels it is now safe to order the appraisal.  In some cases, there is a shortage of appraisers and that can sometimes delay the appraisal and event he closing.  There are many dominos involved in a real estate transaction and the appraisal is one of them.  The goal is to time the game perfectly but in some cases, that isn't possible.  

Home Appraisal Tips For Sellers

When you’re selling your home, it’s important that the home doesn’t appraise for significantly less than what the buyer agreed to pay.  A low appraisal could be a deal-breaker. Here are some ways to help your home appraise for the right amount.

  • Provide An Offer List If you received more than one offer for your home, let your appraiser know. Multiple offers can show the appraiser that your home was priced well. Provide the appraiser with a list showing each offer you received.
  • Attend The Appraisal As the seller, you’re allowed to be present when the appraiser does their walkthrough. Accompanying the appraiser gives you the chance to point out any upgrades, improvements or particularly charming design features. This is your chance to make sure the appraiser doesn’t overlook those fantastic new cabinets or countertops you just installed.  This is also one of the reasons we ask ask you to fill our our "home updates" document so that wa can share that information with the appraiser.  
  • Tidy Up:  You can’t change your home’s square footage or location, but you can make your home look bigger, brighter and more valuable with a few affordable home renovation tricks.  Maximize your space by putting away countertop appliances and clutter. Replace dim light bulbs with brighter ones. Hang mirrors to maximize natural light and give the illusion of a bigger room. Pick up any debris in the front or backyard and give your garden some attention to boost your home’s curb appeal. Do whatever you can to make your home look tidier and more spacious.

What Happens When The Home Does NOT Appraise?

  • Appeal The Appraisal:  Do you think the appraiser made an error? You may be able to appeal the decision.  Review the appraisal report to make sure everything checks out. Did they note all the property details correctly? Are the comparable properties cited in the report too far away from the home you’re buying? These may be grounds to dispute the appraisal. To start the appeal process, contact your lender.
  • Don’t Stress:  The appraisal results are out of your hands, all you can really do is hope things work out the way they’re supposed to. 

Property Appraisal Vs. Tax Appraisal - They Are NOT The Same Thing

A property appraisal is a third party opinion of fair market value.  Fair market value is the “fair” value determined by the marketplace. An appraiser confirms this value by statistically comparing the three most like sales to your home.  The Tax Appraisal value is determined by the county assessors based on neighborhood values in the previous year.  Most but not all of the time, the market value is a bit higher than the tax assessed value.  

We Are Here To Help

We have experienced the good, bad, and ugly when it comes to appraisal situations.  In many cases we never even hear back after the appraisal when working with sellers.  You have heard the saying "no news, is good news"?  When purchasing a home, you will get your appraisal update from the lender once the appraisal is recieved.  We always assume that things will go as planned, however, we will assist you if anything unexpected comes up.