So, you received an offer on your home, you approved it and now it’s smooth sailing until closing, right? Not so fast! There are still a few steps that you and your buyer need to take before you can even think about closing. One of the most important steps is your home appraisal. Let’s take a closer look at how appraisals work.
What is an Appraisal?
A real estate appraisal is a professional valuation of a home. It takes place after you approve your buyer’s offer. The appraisal is the linchpin that determines whether or not the loan amount specified in the offer should be approved by the buyer’s mortgage lender.
How Does the Appraisal Work & What Will The Appraiser Look For?
In most cases, your buyer’s mortgage lender will order the appraisal and an appraiser will contact you to schedule an appointment. It’s in your best interests to have the appraisal done as soon as possible so you can get the results and continue on with your deal.
When the appraiser comes over for your appointment, their goal is to examine the quality and condition of all the elements of your property. Though they will note any repairs that need to be made for the sake of adjusting the value of the property, their role is not to come up with a list of fixes. That part of the sale takes place during the home inspection.
Your appraiser will look at:
Structure & Foundation:
This includes things like your foundation and roof. They’ll take notes on the quality and condition of each; the higher quality materials used and better condition, the more money your home will be appraised for.
Inside Your Home:
Inside your home, the appraiser will once again check out the material and quality of the flooring, walls, ceiling, windows and doors. They’ll also take a look at your appliances and will note any issues that require repair.
Outside Your Home:
Your outdoor space has a major impact on what your home is worth and the size of your home’s lot will play a big role in your home’s overall value. Also considered are things like landscaping, built-in lawn maintenance items like sprinkler systems, the materials and quality of any fencing and so on.
Upgrades & Amenities:
This category includes everything from central AC to an in-ground pool. In addition to an amenities your home has, the appraiser will also consider any upgrades you’ve made to your home – which is to say any work you’ve done to improve it since you bought it.
There are a few things you can do prepare your home for an appraisal, including:
- making any needed inexpensive repairs (less than $500)
- maximizing your home’s “curb appeal”
- pointing out neighborhood amenities to the appraiser (parks, great schools, etc.)
Furthermore, when the appraiser arrives, try to have a detailed list of renovations that you’ve done throughout the house since you moved in. If possible, include the total amount spent on these renovations as well. This will help the appraiser come up with a more accurate figure.
Potential Appraisal Outcomes
There are two basic outcomes than can occur:
- Your home is appraised at or above the agreed upon sale price outlined in your purchase agreement, meaning the sale can move forward.
- Your appraisal comes in at less than the agreed upon sale price outlined in your purchase agreement. If this is the case, what happens next?
What to Do if the Appraisal Comes Back Low
If you hear back from the appraiser and learn that your home has been valued at a lower amount than your agreed upon sale price, don’t worry. The lender isn’t going to provide more money than the appraiser feels the home is worth, but you still have a couple of options.
Negotiate with the buyer:
If the disparity between the agreed-upon sale price and your appraised value is small, consider working out a deal with the buyer. If you know that he or she fell in love with the house, you might be surprised; the buyer may be willing to come up with the additional money out-of-pocket. If not, however, then you may need to drop the sale price of the home if you’re serious about selling.
Request a second appraisal:
If you believe your appraisal was done improperly, you can always dispute it and request another one from the mortgage company or pay to have a second appraisal done yourself. It is possible that a second appraisal will come back closer to your originally agreed-upon sale price.
Now that you understand how appraisals work, you can head into your home sale with confidence.
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