Whether you’re buying or selling a home, you’ll typically be required to have the home appraised before the closing can occur. Except for cash offers, the bank will need to inspect the home and also evaluate the contract price against recent, nearby home sales.
Keep in mind that the appraisal is not the same as a general home inspection. Instead, the appraisal is designed to serve as a contingency that gives the buyer the right to terminate the contract if the home's value does not meet or exceed the contract price.
Below we've shared some home appraisal tips to help you put your best foot forward as the seller and to know what to expect as the buyer.
What's a home appraisal?
An appraisal is the process by which a state-licensed appraiser evaluates a property to determine its true, fair market value. The final appraised value could be higher or lower than the asking price or the price on the purchase agreement.
An appraiser will create a full report that details the home's market value. To create the report, the appraiser will do two things:
- A physical inspection – Appraisers will still carry out inspections but only for the sake of establishing your home’s worth.
- An evaluation of local comparables – Similar to a comparable market analysis, appraisers want points of reference to evaluate your home’s value relative to similar properties in the area.
How does an appraisal work for the home buyer?
Mortgage lenders loan money based on an appraised value, not the listing price or the final sales price of a property.
As the buyer, you want to ensure that you're paying fair market value for the home and aren't "underwater" in terms of your equity position in the property.
How can sellers maximize the value of their appraisal?
There are several things that home sellers can do to prepare for a property appraisal. We recommend the following:
- Provide the appraiser with a list of upgrades you've made
- Perform minor repairs/updates prior to the appraisal
- Request a "pre-market" appraisal or "broker purchase opinion" before listing the house
- Deep clean the house
- Get your agent to provide comparable sales and have your agent provide a packet of comps for the appraiser
To learn more, we've created a home appraisal checklist that should help you get your home ready for the big day.