What is a Home Appraisal, and Why is It So Important?

When it comes to selling a home, one of the most important things in the process is the appraisal. Here’s what you need to know about home appraisals and why they’re so important.

What is a Home Appraisal?

A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. All lenders order an appraisal during the mortgage loan process in order to assess the home’s unique value. However, appraisals are generally also ordered when a homeowner wants to get an independent estimate of their home’s worth for other reasons such as property tax or listing a home for sale.

How is an Appraisal Different From an Inspection?

An appraisal and an inspection are two completely different things. A home appraisal is an estimate of the home’s value. An inspection is a thorough examination of the condition of the home. Usually, the buyer pays for a home inspection (though they may ask you to pay for it).

What Happens if Your Appraisal Comes Back Low?

When an appraisal comes back “low,” it means that the appraiser valued the home at a price lower than what you’re asking for it.

In this case, lenders take a step back. They typically won’t allow a buyer to borrow more than a home’s appraised value. For example, if you’re selling your home for $350,000 and it appraises for $300,000, the lender will tell the buyer they must come up with the additional $50,000 if they want to buy the home.

Can You Lower Your Price for a Buyer After a Low Appraisal?

If you want to sell your home and the appraisal comes back low, you have a few options. You can:

Lower your asking price to match the appraised value
Ask the buyer to cover the difference between the appraised value and your asking price
Cancel the deal entirely

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How to Make Your Home Appraise Higher

If you’re selling your home and want to ensure you get a higher appraisal, there are a few things you can do. Here are some tips:

Get a copy of the appraiser’s report from the last time your home was appraised and make sure they appraised your home for a higher value than what you’re asking.
Make sure your home is in good condition and make any necessary repairs before the appraiser comes.
Add square footage to your home if possible. This can be done by finishing a basement or attic, or by adding an addition.
Research recent comparable sales in your area and make sure your home is priced accordingly. The appraiser will look at similar homes that have sold recently to help determine the value of your home.
Make sure the appraiser is aware of any special features or upgrades in your home that would add to its value.

While there’s no guarantee that following these tips will result in a higher appraisal, they can certainly help increase your chances. Keep in mind that the most important thing is to price your home accurately from the start.

A Word on Pricing

You should always listen to your real estate agent’s recommendation on pricing. That’s because in order to settle on a good listing price, your agent will do a comparative market analysis (CMA). This involves looking at recent sales of similar homes in your area (called “comps”). Based on this information, your agent will have a good idea of what your home is likely to appraise for.

It’s important to note that even if you price your home accurately, there’s always a chance it could appraise for less than you’re asking. This is why it’s important to have a realistic backup plan in place in case this happens.

Overall, a home appraisal is an important part of the home selling process. By understanding what they are and how they work, you can help ensure your home sells for the price you want.

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