A home appraisal is crucial to the home buying and selling process. While they are one of the best opportunities for an objective party outside of the transaction to assess a home’s true value, they can also derail the asking price or cause the lender to withdraw its financing offer. But that’s not all a home appraisal can do. Let’s take a closer look at appraisals, what they mean for sales, and how you can use the results to get the best price possible for your clients.
What is the purpose of a home appraisal?
There are two main reasons for getting a home appraisal, both of which are to ensure that the rest of the sale goes smoothly. First, an appraisal allows buyers to understand whether the fundamentals of the property support their offer. However, their role in the financing process is even more important to many buyers. Lenders need to make sure they are providing the appropriate loan amount for the property, and an appraisal can provide just that. After purchase, a home appraisal can also be used to resolve divorce disputes or a contested estate.
It’s important to share your understanding of this process with your client. When used in conjunction with comparable sales in the area, an appraisal can set realistic expectations for a property’s potential value. After years of a market that favored sellers, the pendulum is slowly swinging back in favor of buyers. Compared to years past when homes sold within hours for thousands of dollars above asking price, 41% of Millennials want to negotiate with sellers, with 26% looking to lower the price. Today, in the ever-changing real estate landscape, home appraisals have become even more valuable.
How does the home appraisal process work?
There are three stages that agents and their clients need to understand.
Phase One: Preparing for a Home Appraisal
First, if you are making an offer on a home on behalf of a buyer, it is critical to include an appraisal contingency in the offer. This contingency relieves the buyer from the obligation to purchase the home if the appraisal is lower than the sales price. This simple contingency can protect buyers and sellers while opening the door to negotiating a new price if the final appraisal is lower than expected.
Sellers should start gathering documentation and support to obtain a higher appraisal. This includes details of any upgrades, repairs, historic features or other aspects of the property that may not immediately come to the appraiser’s attention.
Additionally, sellers should expect cosmetic upgrades to the interior and exterior. Some home appraisers won’t even enter the front door; in this case, the home must look neat and well-maintained from the outside. This includes repairing broken blinds, peeling paint, loose gutters or other visible damage. While most appraisers realize that appearance doesn’t tell the whole story of a home’s value, well-maintained homes often appraise for higher values.
Phase 2: Assessment
Whenever possible, the real estate agent and even the homeowner should be present during the appraisal process. Evaluators may have questions or need documents that they missed in the study. The homeowner or his or her representative may also point out major improvements or repairs that are not readily apparent.
As a real estate agent, attending the appraisal means you can provide your own compensation. Home appraisers will do their research and will often bring their own data, but in some cases an appraiser unfamiliar with the area may miss similar properties within the postcode or wider community. Your presence during the appraisal means you can also answer questions about recent home sales that are not yet reflected in the available data.
Phase Three: Evaluate and Negotiate Price
Once the home appraisal is complete, the appraiser will provide the report to the home seller, buyer, and seller and their respective real estate agents. Review the report carefully and discuss it with your client. Make sure the content is complete and there are no errors or omissions that would affect the estimated value.
This stage is critical. Any errors in the appraisal, if not addressed, can significantly impact the asking price of the property and the potential buyer’s ability to obtain financing. As the seller’s representative, it is your obligation to dispute any discrepancies to obtain the best possible value.
What to do if the house valuation is low
If despite your best efforts and providing more information, the assessment is still low, there are ways to deal with whatever number is returned. A lower appraisal can be beneficial to the buyer; it’s an opportunity to renegotiate the price of the home. On the other hand, your seller may opt for a second opinion. This is always an option; some banks accept the average of the two prices when deciding to finance.
In other cases, you may be representing a buyer in negotiations with a seller who refuses to lower the price even if the appraisal turns out to be lower than expected. When this happens, it’s time to ask the seller to make some concessions. Consider requiring the seller to cover repairs or closing costs to lower the buyer’s out-of-pocket costs or reduce the amount of financing required. In some cases, sellers are happy to offer offers, especially those that come directly from the check received at closing.
keep up with the trend
As a real estate professional, your job is to stay informed. The market is dynamic and significant changes occur every month that impact buyers and sellers. Evaluation criteria have changed and local market trends may differ from regional or national trends.
Invest in continuing education to best serve your clients’ needs. This may include taking assessment courses or seminars, improving your negotiation skills, or taking a marketing course. You are your client’s best advocate when it comes to representing their home, and you need to be up to the task.
Buyers also need you to be discerning when it comes to discovering major problems hidden in surface repairs. When you understand the entire home appraisal process, you will help ensure that everyone gets a fair, mutually satisfactory deal. You are the bridge between the appraisal and the sale; taking the time to understand the home appraisal process can help you better navigate this complex process and satisfy both buyers and sellers.
This column does not necessarily reflect the opinions of the HousingWire editorial staff and its owners.
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