Here’s What To Expect From An Appraisal and What Not To Do To Get A High Value Appraisal
Once an offer has been placed, you have to get ready for what comes next – the home appraisal. What should be smooth sailing could turn into a stranded-at-sea situation, unless you know what to expect and how to get ready for it.
According to the National Association of Realtors, almost one in four closing delays happen because of appraisal issues. It shouldn’t surprise anyone that in the world of real estate, appraisal-related problems are in second place when it comes to
closing issues. The most recurrent problem is finance-related, as mortgage approval issues happen at a stunning 37% rate.
It’s hard to escape the appraisal process, even if you want to dodge any issues related to it. If a mortgage is involved, the banks will send the appraisers no matter what. And you should be interested in an appraisal before you sell your house – that way, you will get every cent that your house is worth. For these two reasons and plenty more, you should know what happens during an appraisal and what to expect from it.
First and foremost, you need to know the appraisal process is not a peaceful time. Both the buyer and seller are nervous, on edge about every little thing. And that’s not taking into account possible delays and upsets either side can face. Not to worry, though!
You will find more than your fair share of information to understand how this whole process works. And everything you will find down below comes from expert real estate agents and veteran appraisers who have gone through this process thousands of times.
BEFORE THE APPRAISAL TAKES PLACE
When Does The Appraisal Happen?
Until you accept an offer, you have nothing to worry about when it comes to an appraisal. Once you have accepted one, an inspector will review your house. After that, it usually takes seven days for the home appraisal to happen.
Simply put, once both buyer and seller have agreed on a number that includes price, repairs, and other contingencies, the lender will send an appraiser to make sure the buyer is asking for fair market value.
There’s a way to skip this process altogether, but it depends on both parts agreeing to do so. Both can agree to use a pre-listing appraisal. If you do that, you can speed things up all the way into closing – but you might lose money on the way there.
Pre-listing appraisals are useful in certain scenarios. They are usually used when you find properly pricing your home a bit challenging.
- These two situations are the most common when it comes to using pre-listing appraisals:
- You have a one-of-a-kind house
that’s hard to find a comparable for.
- The real estate market is acting crazy, either blowing up or crashing down incredibly fast.
WHY SHOULD ANYONE GET AN APPRAISAL?
The appraisal is done to provide an impartial analysis of your property value. It’s an independent third-party source that will objectively price your home.
More often than not, the appraiser is working for the lender. His entire job is to make sure the buyer doesn’t pay more than the house is worth in order to make the loan profitable no matter what happens – in turn, it also protects the buyer from offering more money than he should.
Let’s say, for example, that a buyer loses his job a year after the sale takes place. If he has to sell the house because he can’t pay the mortgage, he won’t be able to pay the bank back if the house goes on sale and a new appraiser finds out he bought it way overpriced. If that happens, the lender also takes a hit after foreclosing an overpriced house and re-selling it at a lower value.
The appraiser takes every bit of information available to come up with an objective price. He looks for comp sales data and checks everything there is to check on-site, whether it’s the house’s size, its features, and condition.
WHY DO SOME APPRAISALS COME IN LOWER THAN STATED IN
THE PUCHASE PRICE?
Yes, it can – and it happens more times than you could imagine. If an appraisal comes in under contract, it means the appraiser found the value of the house to be lower than the price previously agreed by the buyer and seller.
There are a couple of reasons as to why this happens. These are the most common:
1. The Price Was Driven Up By Multiple Buyers
Sometimes, different would-be buyers will drive up the price of a house by competing with each other. Once a seller chooses a price (artificially driven by competition), the appraiser blows the bubble.
To avoid a similar issue, you should always set realistic goals when it comes to choosing a buyer. Choosing the right real estate agent is also important, one who won’t feed you fake promises to get you to ask for more money – that will leave you with an empty house sitting for a long time.
If you are dead-set on asking for a higher price, you need to find a buyer who won’t need financing to purchase your house.
2. The Appraiser Finds An Issue That Negatively Affects The House’s Value
There are times when an appraiser finds something that went unnoticed by the owner – and that always impacts on the house value.
There are times when the buyer knows about it but swept it under the rug. This is usually the issue when the owner remodeled without a permit. In this situation, the appraiser will mark the remodeled room as a cost to cure, which will inevitably drive down the price.
3. The Appraiser Made A Mistake
There’s a slim possibility you might get an inexperienced appraiser that doesn’t know how to do the job right.
Sometimes, veteran appraisers can get the price wrong if they don’t know the area they are working in. In real estate, geographic competency is an important factor when it comes to house value. An appraiser needs to know about the area he is working on. Otherwise, he might be handing out poorly done evaluations.
WHAT SHOULD YOU DO TO PREPARE FOR AN APPRAISAL?
How you prepare yourself and your house can mean a world of difference when it comes to an appraisal. You’ll find a list of what to do down below, try to cross off as many items as you can.
- Deep clean your house and everything inside of it. You need to go room by room and make all of them look spotless. Throw out the trash, clean your garage, empty your attic.
- Once you have dealt with the house, make sure everyone else living there is looking great as well, including your pets. A dog with fleas might drive the house price down, believe it or not.
- Even if your pets are great, clean, and well-behaved, it’s a good idea to secure them. The appraiser’s mood will affect the house value – and you don’t know whether he likes pets or not.
- Take care of your yard. Don’t get too fancy and buy new things to add back there. It’s better to keep it clean and organized instead of trying to make it look like something it’s not. Mow the lawn, remove the weeds, clear leaves and debris, brush away cobwebs, and make it looks picture-perfect. Curb appeal is taken into consideration, no matter what anyone says.
- Refresh your house’s face with a little bit of paint. Once again, don’t go overboard and re-paint your entire house. Instead, give a little touch up wherever it’s necessary.
Go through all of these changes a couple of days before the appraiser makes a visit. The last thing you want to do is turn on the sprinklers as the man knocks on your door or see how he touches fresh paint and gets his clothes ruined.
HOW WILL THE APPRAISAL GO?
Appraisers will start out with your neighborhood, then check your house’s exterior and work their way into your home. There are a lot of factors that are taken into consideration – and some of them are outside your reach. But you should know what they are going to look for and see if you can use it to your advantage.
Learn about both the exterior and interior factors that appraisers look at:
APPRAISAL EXTERNAL FACTORS
Think of them as everything that is surrounding your house, including your house’s:
- Property site
- Construction quality
- Foundation integrity
- Roof integrity
APPRAISAL INTERNAL FACTORS
Think about this as everything that is inside your house, including your house’s:
- Square footage
- Number and size of bedrooms, bathrooms, and kitchens
- Functional layout
- Structural integrity
- Interior condition
- Included utilities
- Code compliance
An appraiser won’t look at your house alone, he will also see how your property compares to similar ones around the area. If there are none available nearby, he will take the overall quality of your neighborhood into consideration.
Once that’s done, they will see your house interior, its layout, and overall structure. All this information is then compiled into a report that serves one purpose: to come up with an objective price.
That’s why you need to get everything looking and working great. You might think how your house looks isn’t important, but when an appraiser sees a dirty house, he can only think about a house that hasn’t had proper maintenance in years – which lowers your property value.
HOW LONG DOES AN APPRAISAL TAKE?
Most appraisals will take a couple of minutes. Unfortunately, not all of them are short and sweet – some may take several hours. It all depends on your house.
Should You Stay Or Should You Leave While The Appraiser Works?
Even though homeowners are not required to leave, it’s not a bad idea to go away until the process is over. That way, you won’t distract the appraiser nor you will be in the way when he is measuring things or taking pictures.
If you decide to stay home, try to talk to the appraiser only if he talks to you. Keep the whole interaction as professional as possible. An appraisal is an extremely complicated thing where you need to write down everything about a house to the
last detail – something that might be hard to do when someone else is trying to chat about the house itself or random things.
On the other hand, having your agent stay at your house is a great idea. Your agent can help answer any questions the appraiser might have. Real estate agents can also provide comparable information that the appraiser might not have. Your agent can also help drive the price up a little bit by showing features or upgrades that the appraiser might not see or notice.
AFTER THE APPRAISAL IS OVER
When Will The Results Arrive?
You will feel how time slows down once the appraiser leaves. Both buyers and sellers will feel how anxiety creeps in – but don’t give into it! Keep your cool. If you did everything you had to do, you won’t have any problems whatsoever.
If you are lucky, the appraisal report will come back in a week – but it usually takes 10 days or more. Keep in mind the appraiser needs to make some calls, check for permits, and verify the information he gathered – it takes time to get it done. In order to speed things up, ask your agent to help the appraiser as much as possible.
As the seller, you won’t get a copy of the report right away. You can, if you want to, request one to the lender and he has to provide it in 30 days.
If you don’t get the report right away, that’s good news! On the other hand, if the report came in under contract, your agent will contact you as soon as possible.
The appraisal report is usually 10 pages long – but it can also be up to 100 pages long. It will contain all kinds of details both from your house and comparable properties that are around your neighborhood. It will also include pictures and information on how the appraiser determined the value of your house.
How Long Will It Take To Close On Your Home Once The Appraisal Is Done?
Once the appraisal is done and handed in, there are two possible scenarios. The first scenario, the one you want, is when the appraiser’s reported value matches the buyer’s offer. That’s when you get to close on your house – and congratulations are due!
You can also receive bad news. That’s when the appraisal comes in under contract. And that’s when you have to consider challenging the appraisal.
How Can You Challenge An Appraisal?
1. You Can Ask For A Reconsideration Of The Value Based On Comparable Sales Data
The first thing a lot of frustrated sellers do when they get a bad appraisal is to call the appraiser and demand answers. They want to ask how did they come up with that number – but it won’t work. Appraisers are not allowed to talk to you about the house you’re either selling or buying.
You can’t ask for a challenge yourself, it has to come from the lender. So, you will have to bring evidence to the table in order to trigger one. The best way to do this is through comparable information, sales from similar houses that were way above your appraisal’s number.
You can also trigger an appraisal challenge if you find out a comparable house was sold undervalued. For example, let’s say a similar house to yours was sold way below your asking price because the owners got divorced and needed to sell quickly. That kind of information is what can help you challenge an appraisal if the appraiser used it to write his report.
Another, albeit costly, option is to ask for a second opinion. Another appraiser can make a report and see if he agrees or disagrees with the first opinion.
2. Sit Down And Negotiate With The Buyer
The best option is to meet with the buyer and come to an arrangement together. Both you and the buyer want this deal to go through, so it should be too hard to find common ground to stand on.
Remember anxiety is an all-time high before the deal is closed and the papers signed. With that in mind, your options boil down to:
1. Bring the price down to match the appraisal
2. Convince the buyer to pay the difference in cash
3. Meet halfway through
In this scenario, your best bet is to rely on your real estate agent or mortgage company. They have probably faced this problem before and know how to handle it. They’ll know to negotiate in order to save the contract.