One of the most important milestones when selling your property is the appraisal. A too-low valuation can result in reopened price negotiations or even kill your deal, but thoughtful preparation can maximize your chances for a successful valuation. Here’s what to do before an appraisal, what not to worry about and why one of the best ways to prepare doesn’t have anything to do with the condition of your home.
What is an appraisal?
The property appraisal is a key metric that mortgage lenders use to validate a property’s purchase price. A licensed professional will visit your property, thoroughly inspect its exterior and interior condition, take photos, and compare statistics like square footage and amenities to recently sold properties nearby.
Using this information, the appraiser will determine your property’s fair market value, and your buyer’s lender will use that valuation when finalizing their loan.
“Appraisers are strictly looking at aspects of the home that impact the value of the home. This includes structural issues, damaged interior/exterior and the overall quality of the home,” said Ashley Baskin, a licensed real estate agent and advisory board member of Home Life Digest based in Aliso Viejo, California.
“They will assess what needs to be repaired and replaced and take that into consideration. They also look at additions that may add value to the home such as upgrades or eco-friendly additions or a new roof. They do not look at tidiness and cleanliness unless it is directly related to the structure of the home.”
What’s the difference between the appraisal and the inspection?
The buyer’s mortgage lender orders the appraisal to validate the purchase price. That protects the bank in case the buyer fails to make mortgage payments and the loan goes into foreclosure. The buyer orders the home inspection, on the other hand, to better understand the property’s condition. Both the appraisal and the home inspection can surface the same problems—such as a damaged roof or cracked foundation—but only the appraisal affects the home’s fair market value.
The appraisal typically occurs after the home inspection because problems that arise during the inspection sometimes affect the transaction. For example, a seller might offer a concession to a buyer because the property has an oil burner that’s at the end of its useful life.
In more serious cases, the previously agreed purchase price might change as a result of issues related to the inspection. Only after the buyer and seller have signed a purchase contract will the mortgage lender order the appraisal.
Another thing to remember about appraisals and inspections is that appraisals compare your property’s condition to similar homes in your neighborhood and school district. Your home inspection, on the other hand, doesn’t take other homes’ conditions into account.
What do appraisers look for?
Because the home inspection has already passed and appraisers focus mostly on the structural and mechanical condition, it’s tempting to take your foot off the gas when it comes to prepping for an appraisal. An overflowing trash can or an unmade bed won’t affect your property’s valuation, but don’t overlook the importance of small repairs and general upkeep practices. The dollar value of small problems can add up quickly, and if there are too many it can raise a red flag for your buyers.
Here’s how it works: As the licensed appraiser investigates your property, he or she will take careful notes about its structural and mechanical condition. A leaky roof, outdated heating and cooling systems, broken appliances, and similar problems will detract from your home’s fair market value.
“To determine the value of the home, an appraisal will take into consideration their findings and then compare the home to homes that recently sold in the area,” said Baskin. “They will price higher than homes that were in poorer conditions or had fewer amenities, and price lower than the opposite.”
What to do before an appraisal
Major renovations, such as finishing a basement or a new driveway, are probably unnecessary. But smaller tasks—many of which you can do yourself at little or no cost—are definitely advisable. Plan on completing minor cosmetic, structural and mechanical repairs, but also investigate recent sale prices of properties near yours. That’s because comparables—the recently sold “similar homes” in your neighborhood—play an outsized role in your property’s valuation.
“Homeowners should ensure that the appraiser knows their neighborhood, so that the appraisal will come back close to what the property is really worth,” said Leonard Ang, an interior designer who provides staging and repair advice to homeowners in the process of selling.
“The homeowner may also provide their own comparables to ensure that the appraiser is getting price information from similar homes. If you’ve done renovations, make sure that these are documented and know what adds the most value.”
Here’s what you should consider doing prior to your appraisal:
Make minor repairs. “Before an appraisal, make minor repairs on the home,” said Baskin. “The small repairs can be costly, so you don’t want to ignore these small issues. Fix minor cracks, change lightbulbs, ensure the plumbing is working, clear the gutters and fix loose cabinets.” Ang also recommends verifying that appliances and light fixtures are in good working order.
Don’t forget the exterior. Easy landscaping fixes, such as weeding and bush trimming, take little time and are easy to do yourself. Clearing debris, trimming the grass, fixing broken garage doors, and repairing cracked glass or damaged siding or shutters also help.
Research recently sold homes in your area for possible comparables. If you know of homes similar to yours that recently sold at a fair price, give that information to the appraiser. The appraiser is not obligated to use that data, but it may help support your sale price.
Give a list of the improvements you’ve made to your appraiser and include dollar values. If you bought your home for $200,000 and you renovated the kitchen and bathrooms, installed a new driveway, upgraded the air conditioning and painted the exterior, those improvements may have a meaningful impact on your property value. You won’t get the full dollar value of those renovations added back, but your appraiser will take them into account.
Tidy up. Although it’s true that the cleanliness of your home should not have an affect on its valuation, cleaning up can’t hurt.
“In terms of tidiness or cleanliness, well, at some point it does have an effect on your appraiser’s overall impression of your home,” said Ang. “So if you have dirty dishes, piled-up laundry and clutter everywhere, there is a possibility that your appraiser might downgrade the condition of your home. Besides, they include pictures in their appraisals, so it’s better to take the extra step of cleaning up.”
My appraisal came in low—what now?
If your appraisal came back low and you believe the valuation is incorrect, consider fighting it.
“If you disagree with the appraised value, you can dispute it,” Baskin said. “You will need to obtain a copy of the appraisal and have solid reasoning for the dispute—for example, you noticed that the appraiser did not take into consideration a recent sale that promotes a higher value for your home. Without evidence, though, it is challenging to dispute.”
Ang agreed, saying the appraiser may have made an error. “You may also opt to get a second opinion from a different appraiser if you’re willing to pay extra cash.”
An ounce of preparation is worth a pound of negotiation
Even if you’re not convinced that making small repairs to help ensure a smooth appraisal is worth it, you can take comfort in the fact that your buyers will appreciate your efforts to keep the property in good repair.
“This can help improve the appraising process since a potential buyer will not need to worry about these issues,” said Baskin.
Once you take care of fixing the little things that are broken, you may find yourself wondering why you didn’t take care of them sooner.