Putting your home up for sale can be an emotional endeavor. After you come to terms with saying goodbye to a place where you created countless memories, some stranger with a clipboard comes along and puts a value on what’s priceless to you.
And that assessment has the power to tank the entire sale.
Yes, the appraisal is one of the scariest parts of the home-selling process—and one of the most confusing. After all, why is somebody valuing your home after you’ve already determined a listing price and received an offer? Plus, you’re never sure if the appraiser is truly factoring in those countless weekends you spent on backbreaking home upgrades—the Jacuzzi tub, the bidet, and the trendy shiplap walls have to count for something, right?
Not necessarily.
Think of the appraisal as a tool for removing emotion from the equation between the two sides who desperately want to make a sale, And understand that it’s completely natural to be a bit confused about just what, exactly, helps add value to your home in the appraiser’s eyes. But we’re here to clear it up for you.
So take note of these common myths surrounding the elusive home appraisal.
Myth No. 1: An appraisal is the same thing as a home inspection
Although both the appraisal and the home inspection are used as safeguards for the buyer (and the buyer’s lender), don’t confuse the two. Home inspectors and appraisers have completely different jobs. Sure, they both poke around your home. But the inspector’s job is to uncover everything that’s problematic—or could potentially become problematic—with the home, while the appraiser’s job is to find the objective market value of the property. Got that?
To do the job, the appraiser will use comps (the same thing you used to determine your list price), but that’s just for starters. Appraisers take into account a home’s condition, square footage, and location. Appraisers also note the quality and condition of the plumbing, flooring, and electrical system. With data in hand, they make their final assessment and give their report to the lender.
Myth No. 2: The appraiser works for the buyer
The buyer pays for the appraisal, but the appraiser works for—and is hired by—the lender. It doesn’t matter if you and the buyers have agreed on a price. The buyer’s lender needs to be on board because it’s the lender’s investment, too.
But don’t fear: Even though the appraisal is meant to protect the buyer’s lender from a bad deal, appraisers are trained to be unbiased and ethical. In fact, it’s a crime to coerce or put any pressure on an appraiser to hit a certain value.
Myth No. 3: An appraisal will give you the magic number of what the buyer will pay
The appraisal process isn’t an exact science. In fact, the appraisal is only one opinion of what your home is worth. It doesn’t dictate how much the buyer should pay, or how much the seller should accept.
So what happens if the appraisal doesn’t match the contract price?
If your home is appraised lower than the price you and the buyer agreed upon, the lender isn’t going to pony up more money to make up the difference. Instead, it’ll be up to you and the buyer to figure out who pays for the shortfall. Can the buyer throw in more? Or do you, as the seller, need to cover the difference just to make the deal go through? Well, let the discussions begin.
“The seller and buyer can agree to negotiate a new purchase price to match the appraisal, or a seller might consider finding someone willing to offer cash, which doesn’t require an appraisal,” says Roberta Loughman, a real estate agent with Shorewood Real Estate in Colorado Springs, CO.
“Buyers can pay any price they determine for the house, regardless of the appraisal,” adds Janice Buchele, senior vice president of residential operations at the William Fall Group, a national provider of real estate valuation and analysis services in Toledo, OH. “The report simply provides guidance for the lender.”
Myth No. 4: The bigger the house, the higher it will appraise
Consider a supersized home built on an average-size lot in an otherwise modest neighborhood. Although the home might dwarf its neighbors, that doesn’t mean it will be appraised for that much more than neighboring homes.
The value of the home is measured as if it were similar to others in the area that would commonly be expected on that same lot, Buchele says. In fact, some people might consider the bigger home more of a burden—after all, there’s more to be heated, cooled, insured, and maintained.
Myth No. 5: The more bells and whistles, the higher the appraisal
Wait a minute: What do you mean your $100,000 investment in fancy appliances isn’t worth $100,000 extra in the appraisal? OK, take a step back. This situation can be hard for sellers to wrap their heads around. But if you’ve overly improved your space with amenities that don’t exist in surrounding homes, there’s no nearby sales data the appraiser can use to decide just what those amenities are worth.
“If no one else in the neighborhood has a home theater, then typical buyers in that neighborhood probably don’t demand a theater,” Buchele points out.
And that goes for your décor, too. You might think your home is worth more because of the impeccable vibe that you—or your stager—have given the house. But appraisers ain’t got time for decorating divas. They make a straight value judgment on the quantifiable aspects of the house—that is, the square footage, number of rooms, and other measurable data.
Myth No. 6: All amenities are created equal
If you’ve equipped your home with an in-law suite, a sexy Tiki bar, or a home exercise space that actually makes you want to work out—well, we applaud you. But if you converted your garage to do so, don’t expect the home appraiser to give you props.
Your house has a garage for a reason, points out Austin Fernald, a home appraiser in Orange County, CA. “Most people want to park their cars where they are safely protected from the elements and break-ins,” he says.
The moral of the story? Be careful any time you remove one amenity in order to add another—it might come back to bite you in the appraisal.
Carla Lee says
Great article!