Sellers may want to sigh relief after accepting a buyer’s offer, but they still have some work to do before settlement. As soon as they sign a purchase agreement, sellers should begin to prepare for appraisal of their home. The buyer’s mortgage company will hire a professional appraiser to assess the property’s value and ensure it matches the market price. Homeowners who refinance may also need to conduct a re-appraisal.
How a home appraisal fits into the real estate buying and selling process
Under most circumstances, sellers should complete a home appraisal when they sell their home. A buyer’s mortgage lender will require an appraisal before they issue a mortgage for the purchase. A lender’s goal with an appraisal is to gather an unbiased opinion on the home’s value compared to the accepted sales price.
A licensed home appraiser will research current market prices and physically visit the home. The appraiser visits the property to view its overall condition and assess any unique features that may increase value. The appraiser also researches the sales prices of comparable properties to help them understand the home’s value. Given the current real estate market conditions, the appraiser’s in-depth analysis forms the basis of a report that provides what the Appraisal Foundation describes as a “credible opinion of value” for a home.
Why do mortgage lenders request an appraisal?
Buyers must acquire a home appraisal if they wish to finance their purchase with a mortgage. The lender will want to determine the underlying value of the home to calculate the maximum allowable amount of a mortgage loan. Lenders don’t want to provide financing greater than the worth of the underlying collateral, so instead of only relying on the purchase price, the lender will look for another independent verification. Note that a lender may also request a home appraisal in connection with a mortgage refinance.
How much does a home appraisal cost?
For sellers, an appraisal costs nothing. The homebuyer pays for an appraisal. According to HomeGuide, a home appraisal averages around $350, though prices can range higher in different geographic locations.
What is done during an appraisal?
Although the seller may feel concerned about the home visit, this is only one step in the appraiser’s information-gathering process. Before the on-site visit, the appraiser will research recent sales of similar homes in the area, known as comps. This sales data helps to lay a foundation for the expected market value of a home. Most of the time, the appraiser requests to walk through the home as part of their due diligence. Sellers should expect a call to schedule this visit after they sign a purchase agreement.
What does the appraiser look for?
When an appraiser visits a home, they first want to verify the physical property characteristics such as square footage, number of bedrooms and bathrooms, and the home’s age. The appraiser does not perform a home inspection, but they may pick up on noticeable issues such as water stains or signs of mold. On the positive side, the appraiser will also want to observe any unique features that could increase a property’s value. They may snap a few photos of the home to include in their report.
How does an appraisal affect a home sale?
The final appraisal report summarizes the appraiser’s research and provides their professional opinion of the home’s value. If this value agrees with or exceeds the sales price, the mortgage lender will feel comfortable moving forward with the loan approval process.
If the appraised value is lower than the sales price, the buyer and seller may need to renegotiate. An appraisal below the sales price means the buyer could find it difficult to secure the financing they need. Homebuyers may place an appraisal contingency in the purchase agreement as added protection, giving them room to back out of the sale if the appraised value skews lower than the sales price. To avoid this complication, it’s imperative that the seller takes the necessary steps to present their home in the best light during the appraisal process.
h2>What to do before a home appraisal
Preparing for home appraisal visits can add some stress to the selling or refinancing process. Taking a step back and viewing your home through an appraiser’s lens can help you identify any potential areas of concern. If you know what an appraiser looks for during their visits, you’ll know how to best correct any issues that could cause a perceived drop in the value of your home.
Here are some basic items to consider:
Check your square footage
Property appraisers use their own set of standards to measure the square footage of a home. Their calculations may differ from county property records, the square footage your real estate agent reported in your listing, or your own independent measurements. Before the appraiser arrives, sellers may want to check any available measurements of their home’s square footage. If the appraiser’s calculation varies significantly, consult with your real estate agent or the appraisal company for a possible explanation. Try to understand what goes into the appraiser’s definition of living space and how that factors into the square footage calculation.
Gather records of home improvements or renovations
In addition to understanding your square footage, you should also review records of any home upgrades that could increase the value of your home. These records might include contractor proposals, construction permits, or receipts for large home improvement projects. The appraiser may not request these records, but it helps to have the information fresh in your mind to answer questions that may arise during the home visit. You may also want to point out to the appraiser any unique features that might increase your home’s value.
Review recent sales
Ask your agent for information on recent sales of similar homes, also known as comps. Compare these sale prices to the buyer’s offer price and prepare an explanation of any differences. Similar homes may sell for higher or lower prices due to many reasons beyond a seller’s control, such as the number of homes on the market, location, or school district. Different sales prices between similar size homes may also consider the presence of certain features such as a detached garage, stone or brick exterior versus siding, or recent renovations paid for by homeowners. Updated features such as a modern kitchen may give sellers a boosted return on investment which could bring in a higher offer from a buyer compared to a neighboring home with an original kitchen.
Sellers should also look at the dates of the comps. If the real estate agent provides only limited information or the comparable sales seem outdated, such as older than six months, ask about using current homes listed for sale to support a higher appraised value.
Take care of minor repairs
While you should not make significant changes to a home after you sign a purchase agreement, you should address minor repairs and strive to present your property in the best possible light. Although the appraiser is not explicitly looking for issues that may concern a home inspector, you’ll want to give them the impression that you’ve kept up with the maintenance and care of the property. Sellers can touch up marks on the walls with fresh paint, replace dead light bulbs, and secure any loose fixtures that the appraiser might come in contact with, such as drawer pulls, railings, or door knobs.
Clean and remove clutter
Staging techniques similar to what you may have done before listing your home for sale can also potentially increase your appraisal value. While cleaning out your home in preparation for an upcoming move, use the appraisal as a further incentive to sift through personal items and pack. Remove junk mail on the countertop and pick up toys or other loose items. You don’t want to turn the home visit into a trip through an obstacle course by forcing the appraiser to maneuver around piles of clutter. Anything you can do to enhance the experience could work to sway the appraiser’s impression of your home.
Don’t forget the outside view
Although you may not talk to the appraiser before they knock on the door, they will spend time viewing the exterior of your home. Before they arrive, you’ll want to quickly spruce up the yard and maintain the property’s curb appeal. Tackle tasks such as clearing the yard of debris, pulling weeds from the flower beds, and sweeping the entryway, porch, or patio.
Taking time to prepare for a home appraisal can ensure that the final report reflects your home’s true value. Before the appraisal, devote a few hours to cleaning and decluttering. Consider highlights you would like to point out to the appraiser if you had a minute or two of their undivided attention. During the visit, welcome the appraiser into your home and prepare to answer questions about any upgrades or features that make your home stand out.