The final hurdle in the sale is often the Home Appraisal. This is the last time a stranger will be through your home before the final walk through of the buyer the day of or before closing. It is the last sale you must make to sell your home.
A home appraisal is the bank’s way of verifying that there is value there as collateral for the home loan. The home appraisal is ordered by the buyer’s lender the first week under contract. Some loan officers will place a hold on the appraiser until they know that the buyer has finished inspections and ready to move towards closing. The appraisal takes two weeks from the time the bank gives them the order until the report comes back. Since the housing crash, banks have stricter rules about home appraisals and selecting appraisers. Most banks use a home appraisal management company. This company works as a middleman between the banks and a handful of LOCAL (not being a local appraiser is a deal breaker for many listing agents) appraisers they rotate through. Banks and buyers are not allowed to pick their own appraiser. Once an appraiser is selected, they will contact the listing agent to schedule to see the house. Some appraisers are also members of our Board of Realtors and have access to the Bluetooth lockboxes and may send this request electronically like the showing requests came for buyers.
Should We Have a Home Appraisal Before We List Our House?
This is a common question. Most of the time we would not advise a seller pay for a home appraisal before listing. There are some exceptions to this:
- If you have a unique home without many comparable properties. This is especially true for unusual rural homes. In north Florida, we are seeing more homes constructed from steel and home appraisals are tripping them up on their way to the closing table.
- If the market in your area is in flux, with prices rising or dropping, independent of the prices in surrounding areas. Like the conversion of a golf course into a residential community could impact the price of your home on that former course.
How to Prepare Before the Appraiser Arrives.
How to prepare before the appraiser arrives.
- Collect important documents for the appraiser. Include any counter offers that change the value, any permitted work, a list of repairs made, and anything else you can think of that may help the appraiser see your home’s value.
- The appraiser’s request to see the house can come anytime after you are under contract until two weeks before closing. Keep an eye out for the showing request.
- Clean and keep your home show worthy until the appraiser has visited. This includes mowing, edging, dusting, tidying up, etc. Do not let the condition lapse just because you have accepted an offer.
- Do not water your lawn. The appraiser will be measure the outside of your home and they do not like tracking mud into your home or their vehicle.
What Will the Appraiser do?
The appraiser takes a no-nonsense view of the home. This is a black and white, just-the-facts-mam, view of the house.
- The appraiser will schedule a tour of your home. Most are in and out of your house in 15 minutes or less.
- You do not need to be there. You will probably not bother them if you stay, but you may end up in the way during measurements.
- The appraiser will take photos throughout the interior and exterior of your home and make notes of the condition of items such as your hot water heater, the roof, the heating and air conditioning system, foundation, flooring, appliances, etc.
- They will go in every building and shed and document the quality of the construction and whether the ‘out’ building has power or water.
- If the loan is for a veteran, there may be more scrutiny and measurement of stairs, decking and railing, etc.
- The appraiser may even look in the crawl space and the attic to check construction quality.
- The appraiser will review the same information on the comparable sales your Realtor has already shared with you, along with any updates that happened in the intervening weeks.
- The appraiser may also take measurements of rooms and fenced areas.
- The appraiser takes all this information and puts it in his final report and submits it to the bank along with the photo documentation.
What if the Home Appraisal Comes Back OVER the Offer Price?
If the reported value on the home appraisal comes back higher than the offer price, the seller will likely never know. The home appraisal report belongs to the bank and the only person they share it with is the buyer. The buyer is not obligated to share that report with anyone – including their agent.
?Storytime: Several years ago, buyers we were working with made an extremely low offer on a rural luxury home located in a neighboring county. The home had been on the market for many years by that time and while the listing price had started way north of half a million, there had been steady price drops during the months on the market. The house was nice and had a great view of a private spring fed lake large enough to fish and kayak on. The house was set in the hill with a massive foundation, but the deck was splintered, the dock was falling into the lake and the fruit trees had died from lack of irrigation. After reviewing the comparable properties (admittedly there were few), the buyers knew where they wanted to be and dropped their offer so that their desired price was midway between the current list price and their offer. Their desired price was more than $100,000 below the listing price. Along with their offer and proof of funds, we send a detailed email reviewing every sale in the previous two years near this listing and explaining how the buyers had come up with this offer amount. To everyone’s surprise (including the listing agent) the sellers countered the offer at the buyer’s desired price. When the home appraisal came back, the value was higher than the list price and the buyers were THRILLED with having over $100,000 in equity! When the sellers asked about the appraisal, the buyers were adamant that they not know the value on the report.
There are a couple lessons here. One, pricing correctly from the start will net your more money than if you test the market at a higher price. Two, it does not matter that the foundation (or new roof or air conditioning, etc.) was heavily expensive, buyers compare the value of your house to the value of the other homes they saw. Every home needs a foundation and roof, etc. Just because you spend twice as much on the necessary item does not mean that the buyer will reimburse you for this decision. Three, the answer is always no if you do not ask. We almost passed this one up considering all the needed repairs at that price point. The buyers were CONVINCED that the sellers would not sell close to where they felt the value was.
What if the Home Appraisal Comes Back BELOW the Offer Price?
According to the National Association of Realtors, home appraisals were the cause of 9% of contract terminations and 18% of contract delays. By the time the home appraisal report comes back, emotions are high on both sides and the buyer and seller may have come to distrust each other and this report can sink a transaction.
Most of what a seller can do is done before the report is written, and very few successfully challenge the value of the appraisal. That does not mean you should not try, because the answer is always no if you do not ask.
Unfortunately for sellers, most of the time they must lower their sale price to match the appraised value to sell. Buyers are not likely to pay more than appraised value. Sellers may want to renegotiate any other concessions they have agreed to on the buyer’s behalf.
Let us review the most common reasons for low home appraisal values and what could be done to avoid it.
Why the Home Appraisal May Come Back BELOW the Offer Price:
1. The contract price is over market value.
You may have the most beautiful home on the street, and the agents and buyers have agreed with you, but the agreed upon sales price may be out of line with other recent sales. Sometimes buyers will go to their financing limits to have the house of their dreams, regardless of what the neighbors paid. The bank does not make emotional commitments though and the appraisal is intended to be a neutral third party evaluating the house. It is easy to get over the market in an emotional competitive bid situation. This is another reason to carefully select a listing agent that will not put you in this situation and selecting the winning bid based on facts and not emotions or hope.
2. The appraiser found an issue that impacts value.
This might be a roof that was added without a permit, or an additional sunroom not recorded in the public records. The appraiser will take into consideration the ‘cost to cure’ any issue he has found which may lower the appraised value of a home. Some FHA loan appraisers can get very specific about fogged windows, or appliances limping along and not operating correctly. These are things that can be addressed before listing and should be noted on the sellers’ disclosures. Most of the time the discovered issue will not be a surprise to the seller.
3. The appraiser ‘ain’t from ‘round here.
Tallahassee has some unique communities, and ‘geographic competency’ is required for any appraiser working in the Big Bend area. This is usually the one and only question listing agents can fuss about to the lender. It is common for listing agents to remove the lockbox and meet the appraiser at the house with comparable properties to justify the price. If the appraiser is not local, the agent can request a new appraiser based on geographic competency.
4. The appraiser missed something.
This is the seller’s best chance to challenge the value of the home and it does not happen very often. This is another reason for the listing agent to meet the appraiser at the house before the report. Most of the time, the value comes back at contract price. For this reason, make sure the appraiser knows that price – especially if that price is on an addendum or counteroffer form and not on the buyer’s original offer. There are times when the bank only sends along that original offer and not final signed document complete with addendum. The appraiser may have missed that the most recent sale was a distressed sale and that will impact the sales price. The appraiser should also know if there was a multiple offer situation as that can help justify that negotiated price.
What to Know About Closing Day.
Now comes the day you have been waiting for!! Here are what we think you should know:
- You should be moved out by now unless you have made other arrangements with the buyers.
- It is a good idea to invest in a final professional cleaning after you have removed your personal belongings. It costs around $200 and will leave a sparkle and shine that the buyer will appreciate.
- Leave receipts for any negotiated repairs along with the contractor’s name and number.
- Buyers will complete a final walkthrough before closing to make sure all is in order. If they find something that is not in order, you will be called back to the negotiating table. It is rare, but it happens. Most of the time in our experience it is either the house is dirty, or the repairs were shoddily completed.
- Bring photo identification to the closing agent.
- You will need to notarize your signature and unless you know the closing agent, they will need your photo identification.
- They will give you a check as soon as the bank has funded the loan. This is usually before you leave the closing table, but it could be delayed up to 24 hours (rarely).
- Leave keys, owners manuals, remote controls for the garage and fans, and anything else that was negotiated in with the sale of the house.