Selling Your Home
by Mark FIsher, Appraisal Technician
July 2020
When thinking of residential appraisals, a lot of people only think of them within the context of the homebuying process. Banks order appraisals to verify that the property value is at least as much as the offer. If the real valuation comes back lower than the offer amount, then the buyer either has to make up the difference or back out of the deal. Anyone who has purchased real property in their lifetime likely remembers this as part of the process!
However, appraisals are not just for homebuyers.
When selling your home, it's often a good idea to get an appraisal. That few hundred dollars you spend for the appraisal could save you thousands and lots of time later. If you're thinking of selling your home, here are three reasons why you should order an appraisal before listing it!
Reason #1: Know Your Prices and What Offers Could Succeed
When selling a home, you will probably discuss pricing with your real estate agent, who will take a look at some similar homes sold in the area and suggest a price for your home. Of course, you might agree or disagree with that figure and want to adjust accordingly. Unfortunately, what you or your agent thinks is the value of your home, is not necessarily what a bank will think. A bank will go with a licensed, reputable appraiser when determining the home's value.
If the appraised value differs significantly from that of your agent's, you could have issues closing the sale.
Consider the following example. Suppose you are looking at selling your home in Missouri for $300,000. Your agent says it's worth that amount, so you go with it. After a month or so on the market, you get an offer at list price. The lending company orders an appraisal, and comparable sales in the area show it is only worth $270,000. The buyer has an FHA loan at 5% down, so the bank won't proceed until you drop your price to $270k. You now have a decision to make - do you waste 1-2 months of work by letting the deal fall apart, or do you lower the sales price to let the deal go through?
You might think that you can keep the house on the market and wait until another offer comes in. The problem there is that most appraisals will come back at about $270k, and unless the buyer is putting $40-50k down or paying cash, no lender will finance it. Meanwhile, if you had contacted a home appraiser initially, you would have saved the time and expense of listing it at $300k, because you would have known that nobody would likely be able to secure financing at that asking price.
Reason #2: Know What to Change
By having an appraisal done, you will know what changes you could make to the home to secure a higher offer. For example, you might notice that the appraiser put your home as a two-bedroom property. The appraiser might use a three-bedroom home as a comp that has a much higher value. Since your house only has the two bedrooms, the appraiser will adjust your home's value downward by about $10,000.
Now, suppose you do have an extra room that isn't technically a bedroom. (A bedroom must have a closet and a window.) You might be able to renovate that extra room relatively cheaply to bump up the value of the entire home. Not only does this bump up your asking price, but it will also bump up the probability that the loan will go through at that sales price.
Acting on the negative adjustments to your home's value will help you get top dollar for your house.
It can also be an eye-opener. Perhaps, for you, having the only home with a one-car garage on the block doesn't matter. However, it might be a significant negative adjustment on the report and, therefore, might be worth addressing before listing your home.
Of course, the opposite can also happen. You could have a four-bedroom home in an area without four-bedroom homes. Adding a fifth bedroom might not increase the appraisal value that much. In this case, you can save yourself time and aggravation by knowing that before starting any renovations.
If you do order an appraisal, make sure to evaluate the negative value adjustments for opportunities. If adding an extra bedroom or a fresh coat of paint would make the appraisal value go up more than it would cost to complete the project, then the renovation is likely worth it. Use the appraisal as an honest critique of your property and seek to fix the areas that will have the greatest return on investment.
Reason #3: Learn More About the Market
An appraisal tells you about the current market as well. Since a core component of the report will be comparing your property to similar sales in the area, you will have a good sense of where your home fits into the market.
Most sellers base their listing price on other listing prices, but just because owners list their property at a specific price doesn't mean it will sell at that price.
Your appraisal will show you how the value of your home compares against other completed sales. Again, this will help ground your expectations and provide a more realistic view of the market before you decide to list your house.
Save Time and Money with Spurgeon Appraisals
Having an appraisal done before you sell your home can save you time, money, and aggravation. While real estate agents are often good at picking home prices, their opinion is not what holds sway with a bank.
No two appraised values will ever be entirely identical, but having an appraiser look at your property should give you an estimate of what the buyer will see.
At Spurgeon Appraisals, we have home appraisers that can service multiple counties within Missouri and Illinois. If you are looking to sell your home, email us so we can come out and help you price your home correctly.
frontdesk@spurgeonappraisals.com
