For both potential homebuyers and sellers, home appraisals can be a nerve wracking time because if the appraisal comes back substantially higher or lower than the sale price, both parties will have to renegotiate accordingly.
But, we’re here to break down what what home appraisals consist of, why they matter during closing, and 7 tips for sellers to ensure they can do everything they can to help move the closing process along.
Why should you care about home appraisals as a buyer?
If your offer comes with an appraisal contingency, you’ll want to pay extra attention to the home appraisal amount, because this appraised property value is what lenders usually base their loan amount on.
If the home you’ve made an offer on appraises at less than your offer price, you have a few options:
- Make up the difference in price. If you really want the home, you’ll need to find the additional funds to pay the amount between your down payment & your loan. In some rare cases, the seller might agree to lower the listing price to make the sale happen. But, in this competitive market, it’s becoming more uncommon, especially if he or she has multiple offers and a back-up offer to rely on.
- Back out of the deal if you have an appraisal contingency. If the appraised value comes in at less than the agreed upon purchase price of the property, and you don’t think it’s worth making up the difference or don’t have sufficient funds, you can cancel the deal and get back your Earnest Money Deposit as long as you’ve met the terms & deadlines in your offer.
So, while a home appraisal can be helpful in protecting you as a buyer, it also means that your dream home and your perceived value of it could be more than what a home appraiser and the mortgage company thinks.
What happens during a home appraisal
During a home appraisal, a licensed appraiser conducts an inspection of the property. If the buyer has a loan, the lender typically orders the appraisal, as they tend to bring the most money to the purchase.
In the appraisal process, the home appraiser will take a look at “comps” — nearby, similar properties that have sold recently — to understand the local real estate market and factor that into the property value.
During the appraiser’s visit, he or she will consider all the other aspects that affect property value, such as the property’s condition, value-adding or detracting features, upgrades, additions, and lot size.
Then, the appraiser will put all the findings into an appraisal report with the most important aspect — an appraised home value.
What are some home appraisal tips to maximize home value?
There are several things sellers can do to pump up their home’s value as much as possible.
Here are seven tips to avoiding a low appraisal. In this case, there’s no such thing as being overly prepared.
1. Vet the competition
Get a sense of what homes are selling for in your area. You can find them yourself in public property records and online through sites like Open Listings.
Look for homes similar to your own that have sold in the last six months. Stick to properties within a few mile radius and that have comparable square footage, layout, upgrades, and condition.
This should give you a fair idea of what to expect from your own market value, and they’ll also clue you in on which improvements make a difference.
2. Finish minor fixes
Every homeowner has a to-do list of projects that are just waiting to be completed – that squeaky door, the running toilet, the finicky garbage disposal. You may have been putting them off forever, but it’s best to get them done before the appraisal.
Though they may seem like small details to you, in the appraiser’s mind, they add up to the overall condition of the home.
To make sure your home is at its best, we suggest taking a tour around your home and make a note of any small fixes that need to be made. Then, go ahead and tackle them one by one.
3. Spruce up the outside
A home is so much more than just what’s between the walls.
The exterior of your home also plays a big role in determining it’s overall value. With that in mind, make sure you take the time to pump up its curb appeal.
Start by improving any functional issues like loose shingles or clogged gutters. Then move onto aesthetics. Make sure any pathways into your home are clear and well-lit, add some charming decorative elements to your doorway, and, of course, make sure that your lawn is freshly mowed for the big day.
4. Consider cosmetic upgrades
Upgrading your home for an appraisal is always a gamble. If you invest a lot of money into a full remodel, there’s a chance you won’t recoup your investment in added value. That said, smaller cosmetic upgrades are nearly always worth the effort.
Things like adding a fresh coat of paint, replacing dated bathroom vanities, and switching to newer fixtures don’t take a lot off money or effort.
When put together, however, they will help your home feel fresher and more updated. As a rule of thumb, you’ll want to stick to projects that can be easily completed on a day off, rather than taking several days and a lot of blood, sweat, and tears to pull together.
5. Document your improvements
Before the appraiser comes, you’ll want to make note of any improvements you’ve made to the home – not just since preparing for your appointment, but throughout your entire tenure.
Your appraiser may not be very familiar with the homes in your neighborhood, so this is your chance to point out any added value in your property. Draw up a list of any big upgrades you’ve made to the property, plus the approximate dates.
If you have paperwork on the upgrades – like contractor invoices, for example – be sure to include copies with your list. Doing so helps to add validity to your assertions and will help the contractor properly assess the quality of work that was performed.
6. Clean, clean, clean
It may sound self-explanatory, but your house should be spotless for the appraisal.
While it may seem unfair, the fact is that appraisals are a little bit subjective.
A clean house is probably going to rank much better in terms of overall condition than one that the inspector perceives as dirty.
7. Give the appraiser space
Finally, once the appraiser arrives, it’s important to give him or her space to do the job.
We know it might be tempting to give him the tour and point out all your improvements, but we’d advise against it. Appraisers do this every day. They know what to look for. If you become their shadow, you run the risk of annoying them or accidentally revealing too much information, which can be more of a hindrance than a help.
Be polite, be cordial, and make sure your on hand to answer any questions they may have at the end of their tour.