Imagine this…you’re ready to sell your home on the open market. You’ve prepared mentally, letting all of your loved ones know you plan on moving. You thought about speaking with a local agent and you’ve done your research. You even started to do some house shopping. You’re dreaming about how moving into a bigger house in that perfect little cul-de-sac will not only put your kids in a better school but also give your family space they so desperately need.
You figure, “If I can just get enough money from my home sale, I can buy the house I REALLY want.” It’s exciting for everyone involved. So you put your house on the market. You want to save a few bucks so you decide, “Hey, I’ll let my cousin who just got their license list my home for sale.”
Then, you get a buyer that loves the home. Plus, they are more than qualified. Everything seems perfect and it’s falling in line. This is an easy sell. You’ve negotiated with the buyer and arrived at a sale number you can both agree to. You’re at the home stretch. It’s almost over and you’re almost in your new home.
Then, the buyer orders an appraisal. Everything seems fine. But then the worst happens and the bank comes back thousands of dollars lower than you thought. Even hearing from your agent about what the bank believes your home is worth makes your stomach tie up in knots… because your dream of owning that bigger house for your family is starting to drift away.
This scenario happens all the time. Homeowners count on the sale of their property to buy their next home. Yet when the appraisal comes back lower than what they thought, their dreams are dashed. If you plan on selling your home on the open market, unless someone is paying all cash for the property, the bank will perform an appraisal on your home.
Even if you’ve sold a home of yours before (or if you’ve never sold a home before), navigating the appraisal process can be gut-wrenching if you’re ill-prepared. If you don’t prepare properly for a home appraisal, it’s possible you could end up reducing the amount of money from the sale of your home. Even if you think your home is in great condition, don’t risk it. Homes in the best of shape can come back with a lower appraisal than expected if the home is not ready for an appraisal on the day of the inspection.
If you’re thinking about selling your home, the appraisal process is a vital step that can make or break the sale.
In this article, we’ll discuss how to prepare for a real estate appraisal.
What is a home appraisal?
A home appraisal is a process that the bank performs to determine the value of a home. The bank performs appraisals when a home buyer is requesting a home loan on a property.
The bank evaluates the home as an asset in its books. It’s important for the bank to understand how much the asset (your home) can sell for on the open market. It’s very common for banks to sell packages that include portfolios of assets to other banks.
Why banks require a home appraisal
As I mentioned above, the bank is evaluating your home as an asset in its books. They are looking to know the resale value on your home in case the new buyer defaults on the property. There’s a small percentage of homes that the bank knows buyers are going to default on.
Another important factor is the loan amount. The bank does not want to be overleveraged on a home, meaning they don’t want to pay more for a home than what it’s worth. After they perform an appraisal, the bank will also determine how much money they will loan the buyer.
The reason why your home appraisal is so important…
The bank won’t lend more than what the value of the property is worth, so you will have a hard time trying to find someone else to purchase the home for more.
Once you have received an appraisal and the bank is aware of what your home is worth, it’s difficult to change the value of your home. In the past, many home sellers would want to argue with the appraiser to get the value of their home changed.
Once you’ve received an appraisal on the home, it’s also recorded within the local tax records. (Disclaimer: the recording process may vary by county. So please check with your local ordinance for this information.) A deal could fall out of escrow if the buyer bid more on a property than what the bank says the home is worth. If that happens, any other bank is also not going to lend above the recorded appraisal amount.
If the bank comes back with an appraisal amount that’s lower than the accepted offer, the buyer may choose to make up the difference by paying the rest in cash. However, most real estate agents are not going to encourage their buyers to pay more for the property than what it’s worth.
When does an appraisal occur?
Appraisals occur after you, as a homeowner, have accepted an offer on the property. There’s typically a contingency period that happens once you approve the offer.
If a buyer is going to use conventional, FHA, or VA financing, they will most likely have a contingency period. This allows the bank and the buyer enough time to have the appraisal written into the contract terms.
How the inspector evaluates your home
The appraiser evaluating the condition of your home is only one of the many factors regarding your home’s appraisal value.
Luckily, the condition of your home is something you CAN control. But it’s important to understand the other factors that come into play as well.
Other factors that affect your appraisal value include:
- Recent appraisal(s) in your area – If a home in your area recently got an appraisal, unfortunately, it may bring down the value of your home. The appraiser not only takes a look at the condition of your home, but they also take a look at the overall market.
- Comparable homes in the area – What’s the value of other homes for sale in your area?
- Supply and demand in the marketplace – Is there a large supply of homes in your area? This could be an indicator that there’s not a large demand for the style of your home and bring down the value. That’s when the next factor, days on market, comes into play:
- Days on market – An appraiser looks at the days on market to determine how long the home is staying on the market before it sells. This is an indication of supply and demand.
How you can prepare for an appraisal
- Tidy up your home – You want to think of your home as being staged for sale. Luckily, if you’ve been following my advice you would have already performed this step as I mentioned in “10 Things You Must Do Before You List Your Home.” If you have unnecessary items that crowd the space you’re going to want to remove those items. Any bit of clutter is going to make it difficult for the appraiser to really see that your home has great bones.
- Do a deep clean – Ordering a deep clean by a licensed and bonded cleaner is worth the price. When the appraiser comes to see your home, your home should be in the best shape.
- Maximize curb appeal – Take a look at your home from the outside, preferably across the street. Have a critical eye when looking at your home. Is there paint chipping? Do the gutters look dirty? Are there bushes that need to be trimmed? Make sure to take a good look at your home with the point of view of a bank without any emotional ties.
- Fix anything that’s broken – Do you have any leaky faucets, broken light bulbs, or a broken dishwasher? You’re going to want to fix all of the little details within the home.
- Pick a time slot when your realtor can be present – You may want to attend, but a good realtor should be the one present at the home appraisal and speak on your behalf. It’s also better for the realtor to attend versus the homeowner because a good realtor can speak the appraiser’s language.
Plus, your realtor can give the appraiser the knowledge they need at the appropriate moment while the appraisal is happening. You don’t want to confuse the appraiser while they’re viewing your home.
- Outline a list of repairs you’ve made to the property – Every repair counts toward your home value. Make sure to present any receipts you have of updates you’ve made on your home to your realtor ahead of time. Your realtor will discuss with you ahead of time what type of repair will help your case.
- Check for any permit issues – If you have made any additions to your home and you have permits, make sure those permits are pulled up ahead of time. Having an unpermitted addition on your home does not look good to the appraiser. They may wonder what other surprises could be in the home.
What happens during the appraisal
An appraiser will typically look at the value of properties within the area before they arrive to appraise your home. They’re going to understand the general value of the neighborhood as a whole. This helps the bank to better determine where your home stands within that value spectrum.
On the day of the appraisal, the appraiser will likely start from the outside of the home and look at the structure. They’re also looking to see what shape your home is in.
Then the appraiser will look at the general condition of the inside of your home. They’re also going to look at big-ticket items like HVAC. The appraiser will go from room to room, taking a keen eye to all the little structural details that make up the value of your property.
What to expect after an appraisal
After you receive an appraisal, the appraiser will write up a detailed report on how they arrived at the value of your home. They will most likely send it over by email in a PDF format and will share it with you and your agent.
If your appraisal comes back at a lower value than what you expected, you may feel ready to defend the value of your home to the appraiser. But before you do, discuss this with your agent. They’ll help you navigate this process and come up with a plan.
If you’re looking to sell your home and want help understanding how to prepare for and navigate the home selling process, send us an email. Quantum Real Estate has only top home advisors serving the Placer County area.