When it comes to selling a home or refinancing a mortgage, the appraisal process can make or break the deal.
“The appraisal is pretty much the lynchpin of any transaction in real estate these days,” says Michael Corbett, Trulia's real estate expert and author. “Over the years there’s been so much acceleration in pricing and a huge drop in pricing that knowing the value is almost an art form.”
How homes are valued can have a dramatic effect on home owners’ mortgages, but because much of the process is dependent on comparables in the neighborhood, they can leave homeowners feeling slighted.
An appraisal details a close estimate of a property's true value, and experts say there are steps homeowners can take to aid the appraiser before the process, or contest an unfair report.
Corbett says the first thing a home seller needs to do is set a realistic sale price. If a seller sets a price higher than the appraised value, buyers are going to want to pay less, and it leaves more room for negotiation.
To determine a realistic price, Corbett suggests basing the price on how much other homes in the neighborhood are selling for. “The pricing has to be substantiated right from the start.” He advises working with a real estate agent that knows the local market and what similar houses are selling for. Make sure to keep any data and comps from the real estate agent—they are useful when contesting an appraisal.
Once a buyer is interested, sellers should seek out a local appraiser who is very familiar with the neighborhood, according to Appraisal Institute President Sara W. Stephens. She suggests finding an appraiser that works superficially on single-family homes, and understands the nuances of distressed sales and is local. “Lots of appraisers are coming 200 or 300 miles into a market to make an appraisal, and that’s a big problem,” she says. “Understanding the part of the city or town is very important.” For owners doing a refi and the bank assigns an appraiser, Stephens says to ask for one that understands their market.
What to Do Beforehand
Before the appraisal, experts say it’s important to compile a list of renovations and the costs associated with them. Make the list short and concise, and try to include before and after pictures. Renovations, if done right, increase the home’s value, and can make the home worth more than others in the neighborhood. Keep in mind that the cost of renovations won’t have a direct dollar for dollar increase in home value.
“Don’t hand them a ream of paper,” says William King, director, valuation services for Veros Real Estate Solutions, a provider of collateral valuation services and enterprise risk management. “The more information you can provide to the appraiser about the work done the better.”
King also advises prepping the home to make it easy for the appraiser to access all areas of the house. During the appraisal, owners shouldn’t follow the appraiser around pointing out every little thing and become a distraction. With that said, be sure to identify non-obvious enhancements like radiant heating on bathroom floors—but skip pointing out the large island in the middle of the kitchen.
Fighting a Low Appraisal
Owners can appeal an appraisal if they think it contains inaccuracies. Ask for a copy of the report and go through every page, looking for errors, and check what comparables the appraiser used to come up with the value.
“Work with an agent that knows the comps in the neighborhood,” says Corbett. “Are they comparing like properties in the same school district and are they within 90 days?” Also make sure the information on the house is correct: check the square footage and the size of the lot. Determine if any repairs or improvements will increase the value of the property, like fixing a bad roof or replacing floors.
Once all the documents have been reviewed, ask the lender to see if the appraiser will reconsider the report or request another one. Keep in mind that a second appraisal comes at a cost, something the seller normally has to pick up.
“Trained professionals are reporting the market as they see it. It’s different from sales we saw three or four years ago,” says Stephens.