Do home appraisals affect selling price?
Nov 01, 2022
When selling, no one wants to overprice their home and have it sit on the market for months on end. And when buying, you certainly don't want to pay more than the house is actually worth. But how do you know what the right price is? Well, getting a home appraisal just might help find that answer.
A home appraisal happens when a professional appraiser evaluates your home and gives you a formal fair-market estimate of what the property is worth. This number is based on various factors such as the size, location, age and features of your home.
Let's take a quick dive into the world of home appraisals and explore what they are and how they affect the selling price of a home.
What Exactly Are Home Appraisals?
Ever seen those reality TV shows where people try to buy or sell a house? It always depicts a lot of drama around finding a home's appraisal value.
As we just mentioned, a home appraisal is when an appraiser—usually someone who is licensed and has experience—looks at your home and decides how much it's worth. This number is based on many factors, including:
- The location of your home
- The size of your home
- The condition of your home
- The recent sale prices of similar homes in your area
After taking all of these factors into consideration, the appraiser will give you a report with the estimated value of your home.
Home sellers often order appraisals before putting their homes on the market to know what price to list their homes at. On the other hand, homebuyers order appraisals during the home-buying process to ensure they're not paying more for a house than it's worth.
The primary purpose of a home appraisal is to provide protection for both the buyer and the seller. Having an objective third-party appraiser estimate the home's value helps avoid disagreements or misunderstandings.
Lenders use appraisals to determine how much money they can lend you if you take out a mortgage to buy a home. Lenders will usually only lend you a certain percentage of the home's appraised value, so it's important to know what that number is before you start shopping for houses.
How Home Appraisals Affect Selling Prices
You would think that the appraised value of your home would be the same as the selling price, but that's not necessarily the case. Appraisals will often come in high or low.
They may come in above the listed price of a home that is on the market. When that happens, that is usually a good thing regardless if you are the buyer or seller. If you are buying a house who appraises higher than the asking price, you might be getting a bargain, as you will be in essence paying less for the house than it is actually worth. Instant equity! If you are selling a house that appraises higher than what you (as the seller) listed it for, then you may want to consider increasing the price - but even if you don't it makes your property scream 'bargain', may elicit more interest faster and also give you as the seller the ability to further negotiate in your favor.
If the appraisal come in lower than the asking price, then as a buyer, that may give you room to negotiate either a price reduction or other concessions from the seller. And as a seller, knowing this upfront gives you the opportunity to reduce the price of the home in order to be competitive. Buyers might be less willing to pay your asking fee if the house has been appraised at a lower value.
How to Avoid Appraisal Issues When Selling Your Home
If you're thinking about selling your home, there are a few things you can do to try and avoid any issues with the appraisal.
First, get it ready for the appraisal (clean it, paint it, fix whatever issues there may exist that would impact the value and appeal of the home). Tt's important to remember that appraisers are human and not perfect. Just because your home is appraised at a particular value doesn't mean that's what it's worth.
If you think the appraised value of your home is too low, you can always try to negotiate with the buyer. If they're willing to pay more than the appraised value, you can sell your home for the price you want. You can also order your appraisal before putting your home on the market. This way, you'll know the appraised value before buyers make offers. If the appraisal comes back lower than you were expecting, you can adjust your asking price accordingly.
Lastly, you can meet with the appraiser before they appraise your home. This way, you can point out any features or upgrades that you think might increase the value of your home. Thankfully, they are sometimes open to revising their appraisals if given new information.
Whether you're buying or selling, the home appraisal process can be embraced and used to your advantage. It provides a standardized, unbiased report whcih determines the fair market value of the home. Knowing what that number is enables you to work it into your selling or buying strategy.