Understanding How Homes are Valued

When it comes to selling your home, understanding how it is valued is crucial. The process of determining a home's value is called an appraisal, and it is typically conducted by a licensed appraiser.

Homes are valued by licensed appraisers that are hired directly by the lender. The law is setup so that the appraisal process is "arm's length". This means that the appraiser does not really speak with the lender, the real estate agent, or anyone else. This is to prevent the appraiser from being influenced by these parties. To summarize, this is what happens:

• A home appraiser will assess the value of a home by conducting a thorough inspection of the property.
• The appraiser will consider the home's condition, location, and features, such as square footage, number of bedrooms and bathrooms, and any special features.
• The appraiser will then compare the home to similar properties in the area to determine an estimated market value.
• The appraiser will also take into account any recent renovations or improvements, as well as any potential negative factors, such as a nearby construction project.
• Finally, the appraiser will use their experience and knowledge to determine a final value for the home.

The Appraisal Process

During the appraisal process, the appraiser will conduct a thorough inspection of your home, noting its size, condition, and features. They will also take into consideration any upgrades or renovations that have been made.

The appraiser will then pull a comparable sales report from the Multiple Listing Service (MLS) that shows other homes in your area that have recently sold. This report will be used to compare your home to similar properties in terms of size, location, and condition.

Comparables

The comparables are used to establish a fair market value for your home. However, sometimes the appraisers just look at comparables and do not give much credit for your upgrades or renovations. They just rate the condition of your home compared to the neighborhood homes that have sold.

The Role of Upgrades and Renovations

While upgrades and renovations can add value to your home, they may not always be reflected in the final appraisal value. The appraiser will take them into consideration, but they will

What if your value is less than your sales price

First, please remember that the bank will only loan a percentage of the appraised value. For example, if the loan is for 90% of value, the buyer pays 10% and the bank pays the other 90%. But this is a percentage of appraised value, which may be different than the purchase price.

For example, if a home is being sold for $200,000, and appraised for only $190,000 - the bank will loan 90% of $190,000, not 90% of $200,000. The buyer will have to come up with the additional $10,000 "out-of-pocket."

It is always a worry that your appraised value might come in at less than your sales price. When this happens, your choices are:

1. Lower your price to the appraised value
2. Ask that the buyer come out of pocket for the difference
3. Split the difference or come to some compromise
4. Cancel the contract and put the home back on the market

FHA appraisals are attached to the property for 6 months

If your home is being sold to a buyer with an FHA loan, you should be aware that any FHA appraisal stays with the home for 6 months. So if you got a bad appraisal and cancelled the contract, this bad appraisal will be on the FHA database for 6 months and you will have to wait if you want to sell to another FHA buyer for a higher price. Most FHA buyers cannot afford to come out of pocket for the difference!