What’s your home worth? Don’t be surprised if you disagree with an appraiser on this question.
In only 17 of the past 110 months between Jan. 2010 and Feb. 2019 did average appraiser opinions of home values exceed homeowner estimates, according to Quicken Loans’ National Home Price Perception Index (HPPI).
In other words, you see a lot more red (representing months when appraised values were less than homeowner opinions) than green in the chart below!
Yet based on HomeLight’s most recent Top Agent Insights Survey, appraisal issues only account for about 3% of delayed or terminated settlements. Moreover, as of Feb. 2019, appraisal values were only 0.5% below homeowner expectations nationwide, a difference of less than $2,000.
“And the reason why they appraise is because we give them the right price to begin with. We look at it as an appraiser when we go in to the listings.”
So although many sellers stress over: “Will my house appraise for its selling price?” the short answer is there’s a good chance it will!
To give your house the best chance of appraising, there’s some control you can exert over the situation: to start, trust your agent’s pricing strategy; show your house in its best light; arm yourself with market research and home improvement records; and—when in doubt—get a pre-listing appraisal.
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Home appraisal basics: How does this step in the home sale process work?
An appraisal is a required part of a real estate transaction that involves financing because it assures the lender that the buyer’s loan is well-spent on this investment, according to the Appraisal Institute, the world’s leading organization of professional real estate appraisers.
A home appraiser is a licensed professional who gathers information and statistics to determine your property’s value based on your neighborhood (including zoning classification), your property’s dimensions and age, construction details (foundation type, basement or attic), utilities, amenities, and condition.
Appraisers don’t evaluate your property on its décor, but they do follow strict guidelines in general, plus additional requirements depending on the potential buyer’s loan type. (An FHA or VA loan, for instance, requires that they note certain safety measures, such as the placement of smoke detectors and handrails on stairs.)
They also run their reports against a database of past appraisals and market data, such as Fannie Mae’s Collateral Underwriter, to confirm their findings are accurate.
Some reasons that your home might not appraise as well as you’d like to include:
- A sluggish housing market when values make a sharp downward turn (a la 2008).
- A rising market, where the turnover is too fast for comparable properties to keep pace.
- Appraisers who are new to the profession and lack local market knowledge.
- You haven’t kept up with maintenance so the house is in poor condition.
- Your home has marketable features such as a pool or spa that don’t carry a high return on investment.
Still wondering, “Will my house appraise for its selling price?” Check out these five expert tips we’ve gathered to set your mind at ease and put your property on track for the right price range.
1. Have an agent price your home with a comparative market analysis and onsite walkthrough
A skilled real estate agent will be able to accurately price your home using an industry tool called a comparative market analysis (CMA). The CMA is put together using a pool of recently sold comparable properties (or “comps” for short) that mirror your house in size, square footage, number of beds and baths, and location.
In the fast-changing real estate market, the more recent the comps, the better the properties will represent your home’s fair market value.
To take her client’s pricing strategy to the next level, Bourne then visits the property with an appraiser’s eye, noting things such as the value of materials in the home, like how much linoleum versus prefabricated preconditioned wood would add at resale, for instance.
She doesn’t give her sellers an asking price over the phone because “you don’t know if they [the homeowners] have added that back porch or the condition of the home.”
When in doubt a pre-listing appraisal can confirm that your list price is right on the mark. This can be useful in the face of certain challenges that make pricing your home harder—whether its an absence of comps or volatile market—but seller’s appraisals usually aren’t necessary.
You will be on the hook for the cost of the pre-listing appraisal (about $300-$500), and getting one doesn’t negate the need for a separate buyer’s appraisal before closing.
“If there’s somebody who thinks their house is worth a million dollars and I’m coming in at $800,000, I would say, ‘You’re more than welcome to get a [pre-listing appraisal],’ just to make the seller feel better,” said Bourne. “But it’s definitely a waste of money if you have a good agent.”
2. Be sure the appraiser is highly qualified and familiar with the area
Appraisers have a heavy workload. According to a study from the National Association of Realtors, nearly 35% of responding appraisers performed more than 300 appraisals in the prior 12-month period.
Colleagues rarely train newcomers to the field. The study notes that less than 1 in 5 respondents train newcomers because of inhibiting factors such as regulation, compensation, and liability.
Aside from these pressures of the profession, some appraisals may be off because the appraiser doesn’t know your local market well.
Lenders aren’t allowed to choose which appraiser handles each property, but they do have a list of appraisers that they use, Bourne said. Online lenders tend to pull appraisers from a larger geographic area, leading to situations where an appraiser doesn’t know the community he or she is visiting.
“The way you fix that is, you use a local lender,” Bourne said. “We make sure that when there’s a buyer, they qualify with a local lender too because when it’s one of the brands online, they just call any appraiser to come in, and it can be from six counties over. And that’s not good.”
3. Give a copy of your CMA or pre-listing appraisal to the buyer’s appraiser
Whether you hire an appraiser for a pre-listing appraisal or your real estate agent conducts a market analysis and appraisal before listing your home, it’s wise to share this research with the buyer’s appraiser so that person can see how the value was calculated.
“We meet the appraiser at all of our appraisals,” Bourne said, “and we give them comps [comparable sales] ourselves and say ‘This is how we came up with the value of this home.’”
4. Provide the appraiser access to your home’s records of maintenance, upgrades, and remodeling work
Upgrades, especially on older homes, such as a new roof or air-conditioning system, carry a lot of weight toward a home’s value. So show the appraiser documentation such as receipts for these expenses.
“A lot of times an appraiser will come and look at an air conditioner, and they’ll see the age on it, or will check the permits when they pull permits,” said Paul Fonseca, a top-selling agent in Fort Meyers, Florida who has 24 years of real estate experience. “But it’s different when you tell them, ‘This was just put in, and it’s a Trane air conditioner, and it was $7,000. And we just got a new roof in the last year, and it cost this much.”
Having receipts and paperwork handy for other renovations also can help the appraiser adjust values accordingly, added Santiago Valdez, a top-selling Chicago agent who’s sold 68% more properties than his peers.
“It’s very difficult to notice the difference between $15,000 cabinets and $60,000 cabinets if you don’t know what you’re looking for,” said Valdez.
5. Whip the house into showing condition before the appraiser arrives
Although appraisers examine a home’s condition and structure more than color and clutter, Bourne said she finds it helpful to get the house ready to show anyway, so the appraiser sees the home in the best light. She focuses on paint, power-washing, curb appeal, decluttering and depersonalizing.
“When you sell a house, you have to sell it three times,” she said. “You negotiate the contract, then you negotiate the inspection, and then you have to make sure it appraises.”
6. Know your options for challenging a low appraisal
What if your appraisal came in low? You can challenge it, but you and your agent must work through the lender.
According to the Consumer Financial Protection Bureau, a lender is required by federal law to provide a copy of the appraisal report only to the buyer. But a seller’s agent can contact the buyer’s agent for a copy.
Review every detail, checking that the appraiser properly noted basic items such as the square footage and number of bedrooms and bathrooms. (Check out HomeLight’s guide “Anatomy of a Home Appraisal Report” for more information on how to analyze the appraiser’s findings.) Then ask your agent to contact the lender and appeal the valuation.
“You go back to the lender, and you say, ‘This appraisal is completely off the mark.’ They’ve missed a bedroom or they’ve missed a bathroom; something like that,” Bourne said. “You give them all the comps as to why you feel it didn’t appraise correctly. … And I would say there’s a 50-50 chance that they change it.”
Will your home appraise for its selling price? Your best shot is a solid pricing strategy from the start
To explain why homeowners often overprice their own house, real estate analysts point to the “endowment effect,” an emotional bias that makes you value something (in this case, your home) at more than its true worth simply because it’s yours.
Yet the natural ebb and flow of the real estate market can also lead to a surprisingly low appraisal. Sometimes it takes owners a little longer to face the reality of declining values, while appraisers are the first to see it coming.
Although there’s bound to be some disconnect between what you think your house is worth and what an appraiser finds, work with your agent ahead of listing and discuss what adds value versus marketability to keep your expectations from soaring sky high. “Be in front of the eight ball, not behind the eight ball,” Bourne said—and you’ll likely land in that 97% of sellers who sail through the appraisal just fine.