When you go through the process of buying or selling a home, a real estate appraisal is an important part of the process for both parties. Banks and lenders require an appraisal and in many cases, this real estate valuation, can make or break the deal.
An appraiser is a licensed real estate professional who is typically hired by the bank or lender to come to the property that’s under contract to be sold, so they can take a look at it, inside and out, and confirm the value of the house, which is the lender’s collateral.
Even though the visual examination can seem arbitrary and subjective (and to some extent it is…), fundamentally, the appraisal is data-driven: it is simply an opinion about a home’s value derived from similar-housing data and neighborhood data. When I come to your house for sale to do a home valuation, the process is much the same. The difference is that I, in my function as your real estate agent, working with you to choose a price to sell your home, can take your opinion into account and work with you on strategy to get the price you want for your home. The appraiser on the other hand, has no incentive to do this, and his goal is to remain neutral.
That’s why you need to stop believing these four home appraisal myths in Seattle, WA.
Myth Number One. The Appraiser Works for The Buyer and Is On The Buyer’s Side.
A common misconception is that the appraiser works for the buyer and that the valuation, as a result, is skewed in favor of the buyer. The buyer may hope the appraisal will come in low, so he can negotiate the price of the home lower. Actually you don’t want that. A low appraisal can kill the deal. The lender may not be willing to lend beyond 80% of the appraised value. If the buyer still wants the deal, he may have to come out of pocket to make up the difference in the appraisal and the contracted purchase price.
Truth: The Appraiser Works For the Lender
Even though the buyer bears the cost of the appraisal, the truth is, the appraiser is actually hired by and works for the lender who owns their work.
It doesn’t matter if the buyer and seller have already reached an agreement on the purchase price for the property. The buyer’s lender is also making an investment, and so the bank needs to agree with the buyer and the seller on the true value of the property. Further, appraisers – unlike agents and inspectors – are answerable to government regulatory agencies. Their mandate is to remain neutral and objective.
Myth Number 2. More Amenities + A Bigger House = Higher Valuation
Upgrades, improvements, many amenities, and lots of square footage don’t necessarily translate into a higher valuation. A home appraisal just isn’t that simple.
The value of a house is calculated on the basis of sales data for similar homes in the neighborhood. If many units are similar – for example all the condos in a condominium building, or all the same-age houses built by the same developer in a given cul-de-sac – it is very hard to justify a property value that is much outside the mean indicated by the similar-units’ values.
So, even if you have the most tricked-out bachelor pad penthouse condo in the building, its value is still going to be tightly aligned with the other units in the building. If you build an amenity-filled house that is newer and larger than all the other 70’s ranchers on the street, you’re not guaranteed a high appraisal on that McMansion, as you would be if it were situated in a more swanky zip code.
Truth: Local Data From Sales Nearby Determines The Relative Price Per Square Foot Of The Property
The appraiser much use sales data from homes that are nearby the subject home in order to help him make his assessment. In that case, the larger home with all the bells and whistles may not be appraised for what the parties involved think it’s actually worth. Basically, if surrounding houses (that have been appraised and/or sold) have a uniform range of price/square foot, something near that range is likely what would have to be used to determine the subject home’s appraised value.
Myth Number 3. An Appraisal = A Home Inspection
Another appraisal story floating around out there is that a home inspection is the same thing as a home appraisal and vice versa. No, no, no! Although both real estate inspectors and appraisers visit and examine a property to determine its condition, the similarities end there. It’s true they are both safeguards for the buyer and lender, but they have different purposes.
Truth: The Inspector Works For The Buyer To Uncover Hidden Building Faults and Is A Useful Tool For Potential Renegotiations.
An inspector’s job, primarily, is to detect any and all problems (or potential problems) with a home. The inspector will look at a building’s roof, foundation, electrical system and air ducts to make sure everything is working as it should. The typical home inspection takes three hours of work on-site for the inspector. He then provides a written report with pictures (often 50-100 pages long) to the buyer, who can decide if he still wants to buy the home, or wants to negotiate with the seller to address items that neither party was aware of.
An appraiser’s job, on the other hand, is to determine the objective market value of the same house. Of course, an appraiser will, just like an inspector, note the apparent condition of the structure, but only as a means to arrive at a valuation for the lender.
Myth Number 4. There’s Nothing You Can Do About a Low Home Appraisal in Seattle, WA
What can you do if you don’t like the appraisal report returned by your appraiser?
If you are the home-seller and the home appraisal comes in much lower than you think it should, you do have recourse. Bear in mind that mistakes do happen – mistakes that can severely jeopardize a potential deal.
Truth: In Some Cases, A Replacement Appraisal Can Be Requested or Purchased
In the case of an egregious error in appraisal, the homeowner – the seller, can and should contact the buyer’s lender and request another appraisal. Your real estate broker can help you with this step. Before you ever reach that stage, though, you should, according to some real estate experts, get an appraisal of your own done before the lender’s appraisal takes place. Keep in mind, too, that federal law stipulates that a copy of the appraisal must be supplied to consumers who submit a written request. Working with a top real estate broker can help you hone in on an accurate property value and have a clear understanding of how much discretion the appraiser may have in valuing the home before sale.