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Home Appraisal - Your Property's Market Value

March 1, 2022

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The Appraisal Foundation - USPAP (Uniform Standards of Professional Appraisal Practice) defines an appraisal as "The act or process of developing an opinion of value."  This valuation is a determination of your property's market value - what it will likely sell for on the open market.  How is this "valuation" determined?  Why does the idea of getting an "opinion of value" create so much apprehension about the process?  What can you do to make your home appraise better, if anything?  These are some of the questions commonly asked about home appraisals.  Hopefully, the questions and answers below will give you more clarity on the subject.

What is a home appraisal?
A home appraisal is a survey of a home by a professional for their opinion of the property market value.  In most cases, an appraisal is done for a bank when a home is being approved for a loan for the home buyer.  The home appraisal is a detailed report that looks at such items as the condition of the home, the neighborhood, what comparable homes are selling for, and how quickly similar homes are selling.  The appraisal may be a sales comparison or a cost/replacement opinion of value.  There is also an income appraisal, but this is done primarily with commercial properties.  The sales comparison will look at other properties in your neighborhood and what they are selling for and then figure how they compare to your home.  With a cost/replacement opinion of value, the appraiser is looking at what it would cost to replace the home if destroyed; this is more commonly used for new homes.  Important To Note: An appraisal is not a home inspection!  Appraisers only look for major concerns; they do not examine the home's full condition (i.e., examine the roof, appliances, etc.).  For this reason, a home inspection should still be requested by the home buyer before purchasing the home.

Who is an appraiser?
Appraisers are licensed by individual states and are held to strict ethical standards.  Appraisers are the third-party whose purpose is to give their opinion of the market value of a home.  Ideally, the appraiser should not be connected to anyone involved with the home transaction.

Who picks the appraiser?
When an offer is made on the house, the appraiser will normally be determined by the lender.  The lender may have their own appraiser or contract with an independent party.  Sometimes the bank will allow the seller to choose an appraiser, but only when that appraiser is already well known to them.

Can the seller get their own appraisal done?
Yes, the home seller may commission their own appraisal before selling the property to determine cost.  However, this will cost anywhere from $300-$500 and the bank will most likely not accept this appraisal but will request another to be done by their own contact.

If not by appraisal, how do I set the price for my home?
Home sellers can set the price of their home with the help of a REALTOR® using a comparative market analysis (CMA); the CMA is not a substitute for an appraisal but will give a good idea on setting an asking price (usually 5%-10% more than the market price for your area).

How can you prepare your home for appraisal?
Prepare for your home appraisal as you would for a home sale.  You are in essence re-selling your home.  Make sure all of the maintenance you can do is done; this includes clearing out and trimming landscaping, cleaning the gutters, powerwashing or painting the house, etc. - hopefully, most of this was already done for the sale and should only need a minor touch up.  Be polite to the appraiser and give them full access to your home; work with, not against, them.  Inform the appraiser of your home improvements.  Let them know about the new windows, new floors, the finished basement, etc.  And finally, don't be caught off guard.  Do your homework and know what similar homes are selling for in your neighborhood.  This is something that should be done before setting your selling price.  In case your home has been on the market for a month or two, keep your research current.  Let the appraiser know about the selling price of homes that are comparable to yours that have sold.  If you know of a particular home that sold for less but is similar to yours, point out any beneficial differences that set yours apart such as, better curb appeal, underground sprinkler system, attached garage, gas stove, etc.

What if the appraisal is low?
An appraisal that comes in lower than the asking price can jeopardize the loan and ultimately the sale. The lender will generally only loan up to 80% of the appraiser’s opinion of the home's value. The most common result is that the seller can lower their asking price. Or the seller and buyer can negotiate and meet at a price in-between. If the buyer still wants the home badly enough, they may put more money down; but this may still not guarantee their loan as the lender will still view it as negative equity. The final option is to dispute the appraisal. Before disputing an appraisal, do your homework. Look at the homes in your community that have sold in the last 6 months and see what the differences are that may make your home more valuable. Perhaps there is a sale that the appraiser missed, perhaps other homes do not have the renovations and improvements you have done, perhaps the appraiser is not familiar with your type of home or neighborhood, etc. Building this case may be a good idea even before the appraisal. This will prevent you from getting rushed by the timeline after the appraisal is done. This is something you can ask your REALTOR(r) to help with as they usually have a vast knowledge of your market area. Once you have prepared your case, present it to the lender. They will likely get a new appraiser or request the same appraiser to reconsider it. If you do not want the same appraiser, make sure to specify this and ask for a second opinion.

What other aspects of the appraisal can hurt the loan?
By far, the appraiser's opinion of the home's value being lower than the asking price is the most detrimental.  However, other factors may cause the lender to refuse the loan or require further negotiations. These concerns would result from property conditions that may require the home buyer to do more investing in the property to keep it valuable, such as upkeep on a private road.  Your REALTOR(r) can help you with these types of objections and altering the contract to alleviate the lender's concerns.

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