Appraisals are a necessary component of getting any home approved for a loan when buying or selling a home. Cash deals do not require appraisals but loans, which comprise most home deals, DO require an appraisal which needs to be valued at least at list price.
Appraisals for buying a home and selling a home have both objective and subjective components.
Market value – Appraisers consider 3 of the comparable properties in the last 6 months against the selling home. Which comparables they use are subjective, but the comparables are objective. This is 80% of the appraisal value.
Adjustments – Similar home type, square footage, immediate area (subdivision or town), school district…these are the criteria generally used by appraisers to establish comparable properties, but minor adjustments can be made to ensure a fair appraisal when selling a home. Adjustments for finished vs. unfinished basement, number of bedrooms, number of baths, number of garage spaces ad whether attached or detached, type of siding on the home, age of the home, lot size, condition/upgrades, and whether or not a home is distressed (foreclosure or short sale) all can factor into an appraisal when selling a home. All these adjustments have guidelines, but the adjustments and the amounts are subjective. Upgrades and lot size usually take the hardest beating on these adjustments and never really get a real and true value. If you have an acre and other homes are subdivision lots, don’t expect the price of the lot itself to be accurate in the adjustment. It will be a fraction, mostly due to the flat vacant land market and difficulty in value. The same is true of exceptional upgrades. You may get a superior value, which will help, but it will not be the cost of what you paid. So, if your home is over-upgraded for your market, compared with similar homes, it will be a fraction of what you paid for the upgrades. This is usually around 10% of the appraisal value.
Condition – Totally subjective. Appraisers would not have seen other comparable homes, but can see pictures on the MLS. They assign a poor , fair, average or superior rating. This can affect 10-15% of the homes value. Also, if you have an FHA loan, there are some repairs that would be required to be done before the home can be loanable. This is subjective but also is
required by FHA requirements. These are all generally safety requirements. Roof condition, GFI outlets, etc.
Frequently asked questions about appraisals when selling a home.
If a neighbor with a similar home sells their house undervalue just to get out, will that hurt my homes’value? Yes, if it is not a short sale or foreclosure, there will be no adjustment.
If the house does not appraise, can the buyer pay extra to meet the agreed price? Sometimes, it depends on the lender and the type of loan. However, it is often difficult to convince a buyer that they should pay over value for a home. Also, they would need to have extra cash, since any payment over the appraised price would need to be in cash. Not the difference between the loan amount and the appraised value, but the appraised value and the purchase price of the home.
Who pays for the appraisal? The buyer
Does the seller get a copy of the appraisal? No, unless they are asking for a price adjustment as a result of the appraisal.
Does the appraisal amount stay with the home if a deal were to fall through? Possibly. If it is an FHA loan and the lender files the case number and the appraisal, then the appraisal – bad or good – will stay with the home for up to 6 months.
How to basements count toward assessed value. Whether finished or unfinished will count, however, walkout, lookout basements are still considered below grade, even if one foot is below grade. The square footage, qualified bedrooms and bathrooms will still only be counted at a percentage of their total worth as compared with above-grade.
So, it really doesn’t matter what you, your buyer, or the agents think of the worth of the house. It only depends how it stands up to similar homes in the area.