When you put your Waterloo Region home on the market for sale, things won’t always play out how you expect. You may discover your home needs more maintenance than you thought, you could discover your home’s not quite worth what you hoped. If the latter’s the case, you’ll want to know if you can sell for more than the appraised value.
With home values skyrocketing across the country, and certainly that's often the case in the Waterloo Region right now, you might expect your home’s value to be at a premium. Home appraisals, however, don’t always match what you’d like to get for your house.
That’s not necessarily a dealbreaker, though. You can sell a home for more than the appraised value, as long as you go about things in the right way.
Here, we’ll discuss what happens if your home’s appraised value comes in below your desired selling price and what you can do to maximize your profit when selling your Waterloo Region home.
Reminder: What’s an Appraisal?
A home appraisal is a licensed appraiser's official evaluation of your home to determine its estimated value. The appraiser considers the neighborhood in which your property is located, the condition of the home, comparable sales in the area, and any amenities or special characteristics of the home. All of these elements go into determining an official appraisal value, which not only assesses how much your home is worth, but also the amount of money a buyer can borrow to buy it.
This last point is crucial. A low assessment can pose serious complications if a buyer needs a mortgage.
How Does the Appraisal Impact a Mortgage?
The appraisal's estimate of a home's fair market value will be used by a buyer's lender when approving a home loan. Even if you've already agreed on a purchase price and accepted an offer, a lesser assessment number could cause the buyer's lender to withdraw the loan offer. More than likely, the bank will change the loan based on the loan-to-value (LTV) ratio, which means that if the buyer wants to buy the house, they will have to make up the difference between the appraised value and the purchase price.
The lender's principal goal is to protect their investment, not to assist the buyer in purchasing a home. As a result, the appraisal is a critical step in the home-selling process. Even so, a lower appraisal does not rule out the possibility of getting your desired purchase price.
How to Sell a Home for More Than the Appraised Value
So, what can you do if the appraisal comes in below your expected sale price? You have a few avenues to still sell your Waterloo Region home for more than the appraised value.
Avoid a Bad Appraisal in the First Place
Maybe it goes without saying, but before you even go through the appraisal process, make sure you’ve done everything you can to get the best home appraisal possible. Some good tips:
Clean your home and make sure it’s spotless.
Make sure features like paint, handrails, doorknobs, plumbing, and railings are all in excellent condition.
Make any known, needed repairs before an appraiser arrives.
Document renovations or improvements you’ve made with pictures and receipts of the work done and permits obtained.
These are simple ways to help your home reach its maximum value in an appraisal and even if some of them means delaying your home's entrance on the market for a few weeks and call for a small financial outlay, it will all be worth it.
Be Mindful of Appraisal Contingencies
Home buyers justifiably want to protect their investment. Many buyers prefer to write in an appraisal contingency to the purchase contract, allowing them to walk away without losing money if the home appraisal comes in low.
You will almost certainly receive multiple bids in a seller's market. Accept no offers with appraisal contingencies if you're worried about a poor appraisal. Some buyers are willing to waive such contingencies in order to make their offer more competitive, which indicates that they are willing and able to pay a higher buying price. However, if the appraisal triggers a contingency, you can't sell for more than the evaluated worth.
Find an All Cash Buyer
Selling to an all-cash buyer is one way to avoid an appraisal condition. If they don't require a loan, they can skip the assessment totally. If you're a seller who's getting numerous offers but is worried about a price gap between your sale price and an appraisal, opting with an all-cash or higher cash offer could save you time and money.
Because homes are such large investments, you may not be able to get an all-cash offer, but if you can, they're well worth considering.
Ask for Another Appraisal
Appraisals can be challenged by sellers. You may believe the appraiser made a mistake because you didn't do everything you could to prepare your home for the evaluation. You can either pay for a second appraisal from the original appraiser or hire someone to offer you a second opinion. After all, this is a subjective procedure.
Although the lender may refuse a second, higher appraisal, it provides the seller additional leverage to negotiate a higher purchase price.
You should do some research on your own to give yourself the best shot at a better appraisal. Verify that the appraiser provided the right square footage, number of bedrooms, and bathrooms, as well as that no amenities or features of the house were overlooked. Did they use the most recent comparable home sales data available in the area? Did they consider the fact that your property has a two-car garage when others in the neighborhood just have a one-car garage?
Review the assessment report with your real estate agent to ensure that any value-adding characteristics of your home are not overlooked in the next appraisal.
As we’ve stated before, a lower appraisal than the agreed purchase price doesn’t always mean the lender won’t approve the loan. The buyer will just have to pony up a little more money to meet new loan requirements. If you’re motivated to sell, you can bring the price down a little and still sell above the appraised value.
Let’s say you agreed to sell for $750,000, but the home was only appraised for $675,000. Coming down to $700,000 will likely satisfy both the buyer and their lender, while ensuring you still come out ahead.
Stand Your Ground
In the aftermath of the pandemic, the housing market has gone insane. Demand far outnumbers supply, implying that a seller's market will prevail through 2022. Regardless of a poor appraisal, there's a strong possibility you'll find a buyer ready and able to meet your buying price, or that if you wait a few months, you'll obtain a better appraisal.
You know when you want to sell your house and how much you want to get for it. Feel free to dig in your heels if you're not in a hurry. Of course, you shouldn't expect to get $1.5 million for a $650,000 house, but don't be afraid to hold out until the right buyer comes along. Some buyers may turn you down, and you may have to leave your house on the market for longer than you anticipated, but if time is not an issue, patience may pay off.
It's much easier to sell your home for more than the appraised value in a seller's market. More buyers are hunting for fewer homes, and some of them will make all-cash offers that do not require an appraisal. You can be selective about how much you sell your property for, depending on how driven you are to sell, even if appraisers don't love it as much as you do.
Looking to sell your Waterloo Region home? Or buy a new one? Let Team Pinto use their huge local real estate 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