Anytime a house sells to a buyer who is financing their purchase, the lender will require a third-party appraisal to verify the value of the property and determine what they’re willing to lend. As a separate matter, sellers also have the option to get their own pre-listing appraisal for the purposes of setting an asking price. That begs the question: Should I get an appraisal before selling my house?
Normally, a top real estate agent’s CMA (comparative market analysis) is all you need to gauge what a buyer is likely to pay for your home, saving sellers the $500-$600 extra expense of ordering an appraisal. And you can always get a free online home value estimate as a starting point. However, certain scenarios may justify obtaining a pre-listing appraisal. In this guide, we cover what those special circumstances may be so you can make an informed decision.
Consider an appraisal if your home has…
The below qualities can make a home harder to value and may warrant an appraisal to determine a price.
Unique features that are hard to value
In an area where the houses are all similar, it’s easier to find comparative sales or “comps” to identify a home’s price range and then adjust the value up and down accordingly whether it has an extra bedroom or fewer updates.
But for homes with unique features — like a detached in-law suite, tennis court, generator, solar roof panels, or even a basement bowling alley — it can be tougher to predict how the market will react. And you’re unlikely to find recent sales of properties with those same characteristics as a benchmark.
“If the unique features are bells and whistles that aren’t common to a house, then it may be more of a ‘nice to have’ than a ‘must-have,’” says Nick Ron, CEO of residential real estate investment company House Buyers of America. “Those types of items are hard to price.”
Take the home of one Indiana seller that was significantly larger than other properties in the area. As a pole barn with living quarters above it, the residence couldn’t easily be compared to neighboring properties, shares Brad Taflinger, a top real estate agent in Muncie, about 50 miles northeast of Indianapolis.
The homeowner, Taflinger’s client, had built the house and garage and had a sentimental attachment to his work and the craftsmanship.
“His price and my price were polar opposites,” Taflinger recalls. “In that case, I suggested that it would be best for him to contact a licensed appraiser before listing.”
A CMA compares the subject property to nearby homes that have similar features, were built around the same time, and have recently sold or gone under contract. This data is readily available in suburban or urban areas, and even more so in planned development communities with plenty of market activity to pull from. But in remote locations, recent comparable sales can be hard to come by, making it challenging to assess a property’s market value.
In Taflinger’s Indiana market, he works with a lot of rural properties, including many horse farms with outbuildings, pole barns, mobile homes, and even indoor riding arenas. In one recent example, he looked at seven or eight farms ranging in value from $225,000 to $699,000.
“With so many different variables, rural properties are never cookie-cutter in terms of appraising value,” he says. “In that case, it would be good to have a pre-appraisal done.”
Extra land or acreage
Surplus or excess land is another issue that may make it more difficult for a homeowner to have a good gauge of a property’s value.
“When analyzing extra land or acreage, an appraiser must consider the size, zoning, and potential uses for that land to develop a credible opinion of its value,” says John Brenan, chief appraiser at Clear Capital, a national real estate valuation and analytics firm headquartered in Reno, Nevada.
“For example,” he adds, “if a property has additional land but that land is located in a flood zone where it’s not possible to build any improvements, that would be substantially different than extra land that could possibly be sold separately from the primary property.”
The most important valuation factor for extra acreage is whether the land can be built on or subdivided, adds Omer Reiner, a property investor and president of Florida Cash Home Buyers has been buying and selling properties since 2011. “If that is the case, the seller may want to request several opinions of value for the property as-is and once it’s subdivided,” he explains.
Other reasons to get an appraisal
Let’s say the above factors don’t apply to your home. It isn’t located in a rural area and it’s surrounded by similar properties. You may still want to get an appraisal in the event that:
You inherited the home
If you’ve inherited a house and plan to sell the property, it may be helpful to get a pre-listing appraisal — especially if you’re not familiar with the area or if the home has unique or historic features that make it tough to pinpoint its value. An appraisal can also be useful if the home was inherited by multiple heirs who can’t agree on a price. In addition, an appraisal may be required as part of the probate process.
You’re not receiving offers
If you made the decision to list your home based on your real estate agent’s CMA and it’s been sitting on the market for a while without any offers coming in, it may be time to hire your own appraiser. In many cases, the issue with a stagnant listing is that it’s not appropriately priced.
Cons to getting an appraisal before selling
If you decide to get an appraisal before selling, you should be aware of the following:
It costs money
With a traditional lender’s appraisal, the associated fees are typically the responsibility of the buyer. But if you’re ordering your own appraisal prior to listing, you’ll have to cover the cost out of your own pocket.
According to Brenan, the cost of an appraisal is determined in the open market and can vary widely based on the type of property and the complexity of the assignment.
“For homogenous properties in markets with considerable recent sales data, an appraisal could be anywhere from $350 to $750, or even higher,” he says. “As the complexity of the assignment increases, the appraisal fee will generally follow.”
Taflinger says that a majority of appraisals in his Indiana market are in the $400-$500 price range, but for homes with very unique features, horse farms, or commercial properties, the cost can escalate to around $2,000.
Lender will still require appraisal
“It’s important to understand that a pre-listing appraisal could not be used by a lender to make a loan decision for a potential homebuyer because the law requires lenders to engage appraisers directly in lending transactions,” notes Brenan.
Two appraisals can result in two very different numbers as well — so your lender-ordered appraisal could still come in lower than the value assigned by the pre-listing appraisal. In other words: No matter what happens with your pre-listing appraisal, a lender will still order their own third-party appraisal to determine how much they’re willing to lend the buyer.
If the appraisal comes in under the contract value, that difference will need to be made up somehow. The buyer can bring extra funds to the table, you can reduce your price, or you can negotiate a compromise somewhere in the middle. Or the buyer can invoke their appraisal contingency and walk away from the deal altogether.
On the fence?
Talk to an agent if you’re unsure
A great agent will be able to help advise you on whether the extra expense of a pre-listing appraisal is needed to sell your home. And even if you opt for a pre-listing home appraisal as a pricing tool, that doesn’t negate the value of a real estate agent’s input. Agents and brokers are experts at not only pricing, but also prepping and marketing properties for sale.
“Although many homeowners may feel like they know the value of their properties, agents and brokers who specialize in a homeowner’s market are aware of recent trends and can help highlight those aspects of a property that may attract more buyers,” notes Brenan. “They can also offer suggestions about what should be done to prepare a house for listing, such as touch-up painting, carpet cleaning, etc.”
Pick a pricing strategy
The decision of whether or not to pay for a pre-listing appraisal comes down to the uniqueness or special features of the property, the availability or lack of sales comps, any uncertainty that might come with an inherited estate, and other extenuating factors specific to your situation. If you want an independent idea of what your house may be worth, or if you think the property is particularly complex to price, order the appraisal. Otherwise, don’t hesitate to use your agent’s CMA — that’s what it’s meant for!
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