In a seller’s market, it’s not just buyers who need to worry about a home appraisal. Sellers need to worry about the home appraisal too or their house may not sell.
What is a home appraisal?
There’s an old saying in real estate regarding what a home is worth. What a seller is willing to sell it for, and what a buyer is willing to pay! But at the end of the day, there’s a third voice that controls the final sales price. It’s what an APPRAISER thinks it is worth! That’s why sellers need to worry about a home appraisal, even though the buyer purchases it.
So, what exactly is an appraisal, and how does an appraiser determine a home’s value? Unfortunately, although there are guidelines, policies, and procedures that appraisers must follow, there is no exact science. Appraisers are supposed to provide an objective opinion of value, but the key word here is OPINION.
For purposes of a home purchase, an appraisal provides a buyer (and his or her lender, if applicable) an assessment of a home’s fair market value.
If the property does not appraise for the agreed upon sales price, the sale may fall through if a) the buyer isn’t willing or able to cover the difference in price, or b) if the seller is not willing to reduce the price to the value of the appraisal.
Appraisal problems in a seller’s market
Unfortunately, one of the “growing pains” in a strong seller’s market is appraisals aren’t always keeping pace with demand that is driving up sales prices. Of course, sellers love to receive multiple offers ABOVE LIST price on their home. However, there’s no guarantee the sale will go through if the appraiser can’t find comparable sales to justify that price.
Once again, the appraiser’s “opinion” plays a role. If you have three appraisers who evaluate the same property, you are likely to end up with three different values for that home. How does the price vary? Well, it depends on the appraiser’s interpretation and application of adjustments for the subject property against comparable sales.
This disparity highlights the need to price your home properly when putting it on the market. While all sellers naturally want to get the most money possible, pricing the home too aggressively may end up backfiring if the result is a low appraisal.
Buyers tend to get cold feet when they feel they have overpaid for a property. Plus, sellers feel they’ve been cheated out of a strong sale when an appraisal comes in low.
Price your home right the first time
That is why it is so important to work with an experienced agent. I provide my clients a detailed Comparable Market Analysis, or CMA, before setting a price on your home. In Kansas City, prices vary by neighborhood so you need a Realtor® who understands the KC market.
I’ll even provide you an instant home market value, and then follow-up with a more detailed one so you know the value of your home.
Make sure the list of properties the agent provides as “comps” are as close as possible in style, age, and finishes of your home. In a seller’s market, there is often a shortage of good, comparable sales for an “apples to apples” comparisons. Ask your agent to explain how they interpret the comps. Does he or she use “apples to oranges” comps in determining market value?
How an independent appraisal helps home sales
Finally, invest in an independent appraisal before you put your home on the market if you have a very unusual property. That way, you can have an updated home value to present to the buyer’s appraiser. They may be able to reference the comps your appraiser used, which may be of great assistance in helping them determine the value of your home.
Every market has its challenges, and appraisals change as the market changes. The appraisal you had done when you purchased your home or perhaps when you refinanced it doesn’t matter today. Ultimately, the key to a successful sale lies in the appraisal done at the time of the new buyer’s purchase. Do your homework up front to try to limit surprises down the line.