Health & Fitness
Why Home Sellers Should Understand The Appraisal Process
Setting the correct asking price for a house, from the start, is by far one of the most important steps in selling a home. But how does the homeowner know the right price?
Who sets the asking price for a house? The seller? The realtor? The home buyer? The appraiser?
How do they come up with the asking price?
In a typical listing presentation, the realtor will bring a copy of the tax records for the subject home, plus real estate data from the neighborhood. This data includes homes offered for sale, pending sales (those that have already accepted an offer but have not yet closed escrow) and a list of all homes that have sold in the area within the last three to six months similar to the one the owner wants to sell. Realtors call this a CMA (Comparable Market Analysis).
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To set the correct asking price for the house, the first comparison will be to look at the number of bedrooms, bathrooms and square footage. Chances are that the builder who built the neighborhood used the same floor plans and many homes in the area are very similar in sizes of lots, garages, fireplaces, etc.
The second part of the evaluation will include the upgrades or deferred maintenance that the subject property has incurred. Adjustments can go up or down depending on condition.
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Home sellers who understand this data are actually doing an appraisal of their property, because that is the exact information that the buyer's lender will use to determine the value of the property for purposes of granting a purchase loan to the buyer.
Even though not all homes are built equally, or maintained the same, the median price for the home should stand out pretty clear. Appraisers must prove the selling price with at least three recent homes sold in the area similar to the one they are appraising.
Most appraisers will be far more conservative than the homeowner when it comes to assigning value to improvements. If you put in a $20,000 kitchen, you cannot simply add $20,000 to the value of the house. Remember that there used to be a kitchen there, and the value of the old kitchen must be reduced from the $20,000.
The difference between a realtor CMA (Comparable Market Analysis), and an appraisal are the forms in which the values are shown. Other than that, they should both come up to the same price range, since the data available from the neighborhood is the same for both parties.
Home sellers who want their property sold should pay attention to these numbers, because it is here where the correct asking price should be set. Leave a little bit of room to grant the buyer a small discount and make sure that the appraiser will have no problem coming up with the correct value of the house.
Most home sellers will want the highest possible price for their homes and often times go way above the median price for the area and put themselves out of the market. Unfortunately their realtors will go along with a higher price in order to represent the seller and take a listing, thinking that down the road they will adjust the price to the correct level.
Everybody loses in this scenario.
If you are a seller, and your realtor tells you a price, your next question should be: "Now, suppose I am the appraiser, can you show me three homes that justify that price?"
If your realtor cannot deliver, move on to the next one. If you do not, you are going to be sitting on that house for a very long time.
Even if your buyer comes along and wants to pay your inflated price, if the appraisal does not match the selling price, the bank will not lend and the buyer cannot buy the house, and you will not be moving any time soon.
