7 Top Home Appraisal Tips For Buyers and Sellers
Whether you're selling or buying a Waterloo Region home, you'll almost certainly come across a home appraisal contingency. While the process is undoubtedly nerve-wracking, knowing what to expect from a home appraisal can help to calm those nerves.
We're here to explain the what, why, and how of home appraisals, as well as offer some advice on how to make your home shine and 'ace' its appraisal.
What Exactly is a Home Appraisal?
A home appraisal is the process of a licensed appraiser inspecting a property thoroughly in order to determine its true value (which isn't always the same as the listing price). The appraiser will then write a report based on their findings and determine the home's appraised value.
When a buyer uses a loan to finance their purchase, the lender is usually in charge of ordering the appraisal. This protects the lender from over-lending or lending more money than the property is worth. As a result, some lenders may insist on buyers including an appraisal contingency in their offers.
As a buyer, why should you be concerned about home appraisals?
Lenders typically base the amount of money they loan you on the property's appraised value, not the listing price. If you're taking out a loan to pay for your home, your lender may require an appraisal contingency to ensure that your loan doesn't exceed the property's value. In these situations, the lender is usually in charge of coordinating the appraisal.
If the appraised value of the home you've made an offer on is less than your offer price, you have a few options:
Make up for the price difference.
As previously stated, lenders determine your loan amount based on the appraised value of your home. Your lender will reduce your loan amount if the property is appraised at a lower value. If you want to buy the house, you'll have to increase your down payment to cover the difference between your new loan amount and the agreed-upon price.
Re-negotiate with the seller on the price.
You can always ask the seller to agree to a lower purchase price if you really want the house but don't want the increased financial responsibility that comes with a lower appraisal value. In a competitive market where sellers receive multiple offers and bidding wars are common, this may be a long shot.
If you have an appraisal contingency, you can back out of the deal.
An appraisal contingency allows you to cancel the purchase agreement if the seller refuses to renegotiate the purchase price and you don't want to pay the difference out of pocket. It also allows you to recoup your EMD (earnest money deposit) if you follow the terms and deadlines outlined in your offer.
How is a House Valued?
A licensed appraiser conducts a thorough inspection of the property during a home appraisal.
All factors that could affect the property's value will be considered by the appraiser. These factors include the property's condition, any upgrades or additions made to the property, the size of the lot, and "comps," or recently sold properties in the same market of comparable size and condition.
How can sellers ensure that their home receives the highest possible appraisal value?
There are a number of things that sellers can do to increase the value of their home.
1. Vet the competition
Examine the sale prices of homes in your area that are similar to yours in terms of square footage, layout, upgrades, and condition. Because markets experience seasonal ebbs and flows, it's best to go back a maximum of 6 months or look at homes that were sold at the same time of year you're looking to sell. A good real estate agent will take care of most of this for you though, so simply make sure you have the comps they find on hand when the appraiser arrives.
2. Complete minor repairs
It's time to pull out that project to-do list that every homeowner has. Oil the squeaky door's hinges, stop the toilet from running, and tinker with that finicky garbage disposal.
They may appear insignificant to you, but to an appraiser, they can detract from the overall condition of your home.
We recommend taking a walk around your house to look for small repairs that you can do yourself. And then actually getting them done, even if it involves hiring some help.
3. Increase the curb appeal of your home.
The exterior of your home has an impact on its overall value as well. If your house were a book, the cover would be its curb appeal, and both buyers and appraisers will be judging it. This is because the state of a home's exterior is frequently interpreted as an indication of its interior condition.
Don't know where to begin? You could start by repairing minor problems such as loose shingles or clogged gutters. Another simple but effective task to complete is to make sure that any pathways leading into your home are clear and well-lit.
Adding charming decorative elements to your doorway and, of course, ensuring that your lawn is well-kept are both excellent ways to improve the appearance of your home.
4. Consider cosmetic improvements.
It's always a risk to upgrade your home for an appraisal. If you spend a lot of money on a big remodel, there's a chance you won't get your money back in terms of increased value. Smaller cosmetic upgrades, on the other hand, are usually worthwhile.
Adding a fresh coat of paint, replacing dated bathroom vanities, and switching to newer fixtures are all low-cost and labor-intensive projects that can have a significant impact.
5. Document home Improvements
You should keep track of any changes you make to your house.
Because your appraiser may be unfamiliar with the homes in your neighbourhood, this is your opportunity to highlight any additional value in your home. Make a list of any improvements you've made to the house.
If you have any documents related to the upgrades, such as contractor invoices, make sure to include copies with your list. As a result, your claims will have more credibility, and the appraiser will be able to assess the quality of the work properly.
Note: Before making any major changes to your home, make sure you get the proper permits. Because resolving unpermitted work can be costly, it can actually lower the value of your home.
6. Clean, and then clean some more
It may seem obvious, but your home should be immaculate for the appraisal.
The truth is that appraisals are somewhat subjective, and a clean home will typically rank much higher in terms of overall condition than one that the inspector considers dirty. Furthermore, not cleaning your home on a regular basis increases the likelihood of pests and rodents invading. This is something that an appraiser will take into account.
7. Don't hover
It's critical to give the appraiser enough room to do his or her job once he or she arrives.
It's tempting to give them advice or point out all of your accomplishments, but we strongly advise against it. This is something that appraisers do on a daily basis. They are aware of what to look for. You run the risk of annoying them or accidentally revealing too much information if you become their shadow, which can cause more harm than good.
At the end of their tour, be courteous, cordial, and available to answer any questions they may have.
Getting ready to sell your Waterloo Region home, or buy a new one? Let Team Pinto use our huge experience and expertise to help you. Contact the award-winning Team Pinto here, or book a free Zoom consultation to discuss your unique Waterloo Region real estate needs here.