I was asked yesterday, “What is an appraisal?” Yes, it was a child that asked that. (give my clients some credit) But as I was answering, it occurred to me that most sellers know that an appraisal is the value on their home… but I wonder if they know that really, it’s an “Opinion of Value”.  Appraisers typically have more schooling and education that some lawyers or doctors, so this not a job to be taken lightly.  Their opinion is an educated opinion.

Who hires the Appraiser, and how are they chosen?

The appraiser is hired by the bank. They are a neutral 3rd party, hired to protect their investment. Since our crazy over paying days, things have gotten a little more strict on the appraisal side. The lender is not allowed to speak to the appraiser. In fact, most appraisers don’t even want to speak to the agents. They want to get it, try to justify the price the buyer is willing to pay and move on with their day. When they have completed the report, it is thoroughly reviewed by a board of their piers prior to being sent to the lender, and then on to the buyer… not you, the seller. That’s right, you may never know what the appraisal says, unless it’s lower than the purchase price. It belongs to the buyer.

How do they decide on price?

The price of the home should carefully be considered when you list. If it is priced well, it will sell quickly. While the popular z “estimate” goes off of price per square foot, that is NOT how we do it in the real world. Your Agent will typically recommend a price that compares to recent sales, and take into consideration the true competing homes.  This will get your buyer in the door, however, the appraiser works with a stricter parameter. While your buyer may have looked at homes in the town over as well, the appraiser can only pull comparable homes within a close range to your home. Typically this is done within the same neighborhood, however, some are pulled from a mile to 3 miles away, depending on the uniqueness of the home. They will look for sold homes that have similar upgrades, functional layout, location and quality of care.  What is functional layout? For example, an extra bedroom is worth less if it is awkwardly placed in a home. So, while closing in that den  or adding a 3rd bedroom to a 2 bed 1 bath home worked for you, it did not get the return you may have hoped. This is where many homeowners go wrong in their home improvements.

What should you do to prepare for the appraisal?

Like the inspection… no, you can not attend the appraisal either. This is a VERY delicate time. This individual is like Oz, behind the curtain. They are the most powerful person in your transaction. They will decide, ultimately, whether this deal is going to go through, or if you’re going to make less money. This is the person you kiss up to, BIG time.  So what CAN you do?  The Opinion of Value is not just based on how many square feet you have. It’s not based on the existence of tile or cabinets. It’s highly based on their opinion of the home overall. The reason you cleared out the home, scrubbed the cabinets and walls, shampooed the carpet, painted the baseboards and doors, and made everything look like a model home wasn’t JUST so that the buyer would fall in love and see the nice open spaces and well maintained home and pay your full asking price. You put all that effort into preparing for the sale, for this moment. When the appraiser walks in, you want them to be blown away! You want them to see the large, open floor plan. You want their opinion to be that this is an extremely well maintained home. You want them to have the highest opinion of your home.

Keep in mind that what they don’t see when walking through, they don’t know. It is wise to put together a list of any and all items that you have upgraded in the past 5 years. Provide a folder with information on anything you’ve done, as well as estimated costs for those items if receipts are not available.  The new toilet for $120, the new front door for $1200, the new tiled shower for $2000… keep track of these items. When  you want to get a 40% increase in value, when the market has only increased 30% since you bought the home, these items will factor in to the opinion of value, helping to justify the purchase price for you. The new AC and the new pool pump are not factored, unless the appraiser knows that they’re new. Keep in mind that even though you upgraded the cabinets 10 years ago… unless they look brand new. They’re old, outdated cabinets. They’re not getting you more money.

Bottom line is, make your home look better than when you were listing it, and you may have a chance of getting that appraisal to come in at price.

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