Home Appraisal: What Do I Need To Know When I am Buying or Selling a Home?
What is an Appraisal?
An appraisal is an expert estimate of the value of something. When a home is purchased with a loan, an appraisal is required to assure the lender and the buyer that the value of the home is at least equal to the amount the buyer is paying to purchase it. Home appraisals are based on recent (usually within the last three months) sales price of comparable properties. The standard California Residential Purchase Agreement has an appraisal contingency written into it. That means that a buyer can cancel the sales contract without penalty if the home appraisal does not meet the contract price. California residential real estate appraisers are licensed by the state which dictates a course of study that must be completed in addition to passing an exam. Strict guidelines and standardized forms are used when completing a new purchase residential appraisal.
How can I make sure that my home appraisal comes in as high as possible?
Ask your Realtor if your appraiser will be local: does he live within 10 miles of your home? If not, make sure your agent supplies as much information about the quality of your neighborhood as possible so the appraiser is able to understand the value, i.e. school ratings, neighborhood amenities, low crime rate, etc…
Make sure your agent will provide the appraiser with at least three solid and well-priced comparable properties. Usually these will be homes that have sold within the previous 3 months and are within one mile of your home. If there are not any sold comparable homes in the immediate neighborhood your agent will need to find a similar neighborhood that has similar homes for the appraiser to use in his appraisal. This will insure that your appraiser is getting price information from homes that really are comparable to yours.
Make sure any updates you do prior to putting your home on the market will positively affect your home value. This usually includes upgrades to kitchen and baths. You do not need a complete renovation of these spaces to reap the benefits. Re-grouting, updating lighting, mirrors, or faucets in a bathroom can make a remarkable impact in a bathroom for a relatively small amount of money. The same can be done in the kitchen: update lighting, paint cabinets or update the drawer pulls and cabinet handles. You’ll be amazed by the difference in the feel and perceived value of the home. Another cost effective update is to replace worn stained carpets or change to laminate flooring. Repair broken floor tiles and squeaky floor boards. One of the most inexpensive updates that will help to increase your value is painting the interior of the home a light and neutral color. The result is a fresh and new feeling that will certainly increase the “this home is well cared for feel.” Your agent should guide you in the right direction when updating-make sure to ask for that advice before you start your updates.
Give your agent a detailed list of the home upgrades you have completed. Include photos and receipts. If the work was done with permits, include copies of those also. Remember, additions done without permits will not be counted in the square footage of the home. Some value may be added by the appraiser, but not the full amount that would customarily be given if the work was done with permits. This issue has come up recently in working with 2 different clients of mine who purchased about 10 years ago at the height of the real estate frenzy. These sellers had seen their home values rise enough to recoup their investment but were disappointed when they found out the appraiser in 2005 included the full value of non-permitted square footage in their home appraisal which could not be counted today. Appraisers in this post real estate crash era are much more careful to follow the approved standards and regulations when completing home appraisals.
Do your best to make the overall impression of your home as positive as possible. Make sure the lawn is mowed and the bushes trimmed. Be sure and clean your home and have it “open house ready.” Turn on all the lights, clear out the kids, and make sure your agent is there and available to answer questions and provide the appraiser with Multiple Listing Service printouts of the comparable sold properties and with your list of home improvements and upgrades and positive neighborhood information. A neat well cared for home prevents any doubt of home condition and value from creeping into the appraisers mind and showing up as a negative on your appraisal.
Can I get a second appraisal if the first one comes in low?
The buyer (borrower) pays for the appraisal. If the property ”does not appraise” (meaning the home value the appraiser determined is less than the contract price) either the seller needs to lower the contract price to the appraised price, or the buyer needs to come up with the difference between the two prices in cash. Another option is for the seller and the buyer to negotiate a price somewhere in the middle. The lender will only grant a loan up to the appraised home value. If no remedy can be agreed on, the contract will be canceled.
If your appraisal comes in low make sure that you read it through thoroughly to be sure the information it contains is accurate. Look at the comparable sales the appraiser used when determining value. Discuss any questions you have regarding the appraisal or comparable properties used with your realtor and your lender. A lender can prepare a report to contest the results of the appraisal if there is substantial evidence that the appraisal is inaccurate. Again, the lender can contest the appraisal but the appraiser does not have to change the results of his/her expert estimate. Sometimes a second appraisal can be ordered but it is the exception rather than the rule. The buyer pays for the appraisal and decides whether or not the seller receives a copy. If negotiating a new price is necessary, the buyer will usually share a copy of the appraisal with the seller to support his negotiation of a new price.
The home appraisal is just one component of buying or selling a home. In order to get through the appraisal process successfully it is imperative first of all, that your home is accurately priced and secondly that your home shows as positively as possible. Your realtor can guide you through the appraisal and all aspects of the home buying and selling process. Make sure you select an agent who will take the time and has the knowledge to make sure you realize your real estate goals.