How To Prepare For A Home Appraisal: Best Tips
The appraisal is one of the more stressful points of a home sale. Home sellers feel they are unable to control the outcome of the appraisal. Here, I will help you better understand the appraisal process and share tips to increase your home appraisal value. Let’s start by getting you more familiar with how are homes appraised. I’ll conclude with some tips on how to prepare your home for an appraisal to increase home appraisal value.
What Is A Home Appraisal?
Appraisers are frequently asked, “how do home appraisals work?” An appraisal is the opinion of the market value of a property and verification of the property’s current condition. An appraisal is completed by an appraiser.
Many home sellers want to know if getting a home appraisal before selling would be beneficial. If you are trying to sell your home FSBO (For Sale by Owner), a pre-listing appraisal will help you determine the listing price and market value for your home. Otherwise, the only appraisal that matters is the one completed by the buyer’s lender by an appraiser within the lender’s appraiser pool.
What Do Home Appraisers Look For?
A home appraiser is there to verify the property’s condition and the property’s market value is equal to or greater than the contract purchase price.
Appraisal And Verification Of Condition
The first thing to know to understand how home appraisals work is to know the property must be in acceptable condition to place a mortgage. In the mortgage lending and appraisal world, the schema used is the C-Scale. Generally, lenders only lend on C1 through C4 homes.
C1 – A brand new home that has never been occupied
C2 – A home that has had a major renovation. An example would be nearly all major home components have been replaced; the home was truly gutted.
C3 – A C3 is a home that is completely in suitable condition with no signs of neglect and has been lived in. 95% or more of homes fall in this category.
C4 – This is a home that is a C3 but has some signs of disrepair or neglect and is likely livable on the first day after closing the loan.
C5 – The home is in disrepair and is unlikely livable on the first day. This could include situations such as the utilities being disconnected, the home being damaged, unlivable, and external elements entering the home (i.e., pests, animals, weather, rain).
C6 – A C5 but even worse. The home is in terrible shape and is simply not livable.
SPECIAL NOTE FOR FHA, VA, AND USDA MORTGAGES
Appraisals for FHA, VA, or USDA mortgages follow this same condition scale. However, the appraiser must also complete a slightly more thorough inspection. With these loan types, the home must meet “minimum property requirements.”
Minimum property requirements focus on health and safety issues. If a health and safety issue is uncovered the seller or buyer must get it repaired for the appraiser to advise the lender to allow the loan to take place. Here is a list of common issues:
Slip, trip, and fall hazards like missing handrails or guardrails,
Peeling paint (yes, outside buildings like sheds and detached garages matter, too. And, this one remains true even if the home was built later than 1977 after the lead-based paint era),
Open electrical receptacles or switches
Active leaks and pipes in the roof,
Broken windows,
Doors that do not latch or exterior doors that do not lock
Appraisal And Verification Of Value
The appraisal is also designed to verify the home’s market value is equal to or greater than the contract purchase price. The appraiser collects information about the subject property and then looks for similar, recently sold homes nearby.
Here, I have listed the criteria to help you better understand how homes are appraised. Though the importance of each piece of data remains debatable, I have done my best to place it in what I believe to be a relatively reasonable order of importance.
Location
Number of bedrooms
Number of bathrooms
Finished square feet above ground
Finished square feet below ground (think finished basement)
Total finished square feet
Home design (i.e., ranch, two-story, Cape Cod, split level)
Year built
Major features (i.e., garage, fireplace, pool)
Lot size (generally, the house on 2 acres is not worth much more than the same house in the same area with the same features on 0.20 acres)
Overall look, feel, condition, and aesthetic sentiment (yes, I am certain there is some subjective element involved)
How Long Does A Home Appraisal Take
The appraisal usually has two parts. First, the appraiser must physically come to the home and briefly tour it. This only takes about 15 to 20 minutes. With an FHA, VA, or USDA and its added verification of minimum property conditions, the appraiser may be at the property for 30 to 40 minutes.
The second part is the report. This is where the appraiser will enter all the relevant information about a property and find comparable sales. The length of this portion will also depend on the complexity of the property, but our appraisers can usually complete the report on the same day as the inspection.
An additional frequently asked question is how long does a home appraisal last? The answer to this depends on the type of loan.
Conventional or insured conventional loan: lender dependent, but generally 90 days to 6 months
FHA loan: 120 days from the date of appraisal
VA loan: 6 months from the date of the appraisal
USDA loan: 150 days from the date of the appraisal
How Much Does A Home Appraisal Cost And Who Pays For It?
A home appraisal can cost anywhere from $500 to a few thousand dollars depending on the complexity of the property and the distance our appraisers will drive to get to it. A standard cookie-cutter home (2500 sq ft.) will likely cost around $500. Homebuyers using an FHA, VA, or USDA loan are likely to pay a higher rate. This is because the appraiser must have more experience and additional credentials to complete these.
Also, how quickly an appraiser can complete the order will have a great effect on the price. Most appraisers will take more than 5-7 business days to complete an inspection and a report. Our standard is 3 business days. Any less than that, appraisers will charge a rush fee.
This leads to the next topic of who pays for the appraisal when buying a home. Buyers almost always pay for the appraisal. Additionally, this is almost always paid outside of closing.
10 Tips For Preparing For A Home Appraisal
These home appraisal tips are here to tell you how to prepare your home for an appraisal and effective actions for increasing your home appraisal value. I have also included a downloadable home appraisal checklist to prepare for a home appraisal.
1. Cut The Grass
The outside of your home should be well-kept. The outside is the appraiser’s first impression of your home. Additionally, the appraiser is going to walk around the yard to view it and the home’s exterior. Make sure the yard is free of any trip and fall hazards. Clean up any dog mess in the yard, too. You wouldn’t want to ruin the appraiser’s day by having him or her step in a pile of doggy-doo.
2. Clean Your House
Cleaning your home is the best thing to do before a home appraisal. Treat the home appraisal like it is the most important showing because at this point it is. You want the appraiser to have a pleasant experience while appraising your home. This means your home should be neat and clean with everything in its place. No dirty laundry, dirty dishes, or overflowing garbage cans.
3. Put Your Pets Away
Your pets are your best friend, but they may or may not like the stranger (appraiser) in your home, so it’s best to keep your pets in a crate just to be safe. I was bit by a dog a couple of weeks ago who was friendly according to the tenant (just not on Mondays apparently).
4. Staged To Sell
Using what you have, make the space inviting, warm, and desirable. Just like when you were showing the home you want to have a high aesthetic sentiment in the home. This is the feeling of positive vibes you get from seeing and being in a space. Have the lights on, doors open, and the shades and drapes up and open. Do whatever staging you were doing for showings, too.
5. If It’s Broken, Fix It
It is likely by the time you have an appraisal you have already had an inspection and may have agreed to fix some items. For this section, I am talking about fixing open and obvious items. A door handle, a light switch, or some other common item that any visitor would see. If you’re trying to get the top dollar for your house, make the effort and fix anything openly and not working correctly.
6. Easy Access
All parts of the home should be easy for the appraiser to access. This includes scuttling hatches into attics. Some appraisers are more thorough than others. Some loan types require a more thorough review of the home, too. Again, you want the appraiser to have a pleasant experience in your home. Don’t make the appraiser have to figure out how to access parts of the home.
7. Be A Wallflower
If you decide to be home and present during the appraisal try not to interfere. Guess what…it’s not the appraiser’s first day. He or she knows what to do. The appraiser does not want you to take them on the dime tour, talk their ear off, or anything else. Be courteous and just let the appraiser complete the task at hand.
8. List Meaningful Updates
Home appraisers do care about meaningful updates, and these will increase your home’s appraisal value. Communicate these updates by leaving a list of updates where the appraiser will find them. Note to the appraiser that he or she can take it with them. Also, include invoices for the work.
The careful part of this comes here. The appraiser doesn’t care that you bought a $50 bag of grass seed and put it on the lawn last year. Instead, focus on more meaningful items. A recent kitchen or bathroom remodel, a new roof, new HVAC equipment, a new water heater, and a recent interior or exterior paint job that covered 50% or more of the home. These are meaningful updates that can push the value needle upward. Include invoices if you have them. Do not put down budgetary figures or estimated values from work you did yourself.
9. Keep Your Clothes On
I know it’s freeing to walk around in your birthday suit or Sponge Bob boxers, but just make sure you come to the door fully clothed. I say this from many years of inspections.
Can I Appeal An Appraisal?
Yes, home sellers can appeal an appraisal, but there is no judge and no jury. First, you should understand the purpose of the appraisal. If it was for lending purposes, you must contact your lender first because they are the ones who hired the appraisal. They will reach out to the appraiser if they missed anything. Most lenders have a review process in place and by the time it gets to you it has been reviewed multiple times
At the end of the day appealing an appraisal is telling the person who did the work that he or she did so incorrectly.
Still not satisfied? here is what you can do if the appraisal is less than the purchase price.
Option 1 – Appeal For An Appraisal Revision
When there is a missed appraisal you should be provided with the appraisal report. Review it and look for any errors. Specifically, are the homes used as comparable homes similar to your home? Additionally, are there other, more comparable properties nearby which have recently sold? If so, the appraiser could have made an error. You or your real estate agent can put together a brief report to send to the appraiser to present additional information. This may result in an appraisal revision.
Option 2 – Negotiate A New Price
Home sellers can negotiate with the buyer to cover the appraisal gap. Buyers can cover an appraisal gap with cash and still get the loan approved. You as a home seller need a buyer who has cash. One way to be aware of your buyer’s cash position is by knowing if they are making a down payment greater than the minimum down payment for their loan type.
Option 3 – Lower The Price
The fastest option to continue to make progress is to sell the home for the appraised value by amending the purchase agreement. Home sellers taking this option can potentially recover some of the lost proceeds incurred by lowering the price. First, negotiate with the buyer to not complete any repairs not yet completed. Secondly, claw back any closing cost allowances you gave the buyer.
Option 4 – Punt And Fall Back By Re-Listing The Home
Yes, starting all over and re-listing the home is an option. Yes, as a real estate agent I have seen an appraisal miss on valuation, get re-listed, and a new appraisal produces a different result. Remember, an appraisal is nothing more than an appraiser out there giving his or her best effort. The next appraisal could be better.
When re-listing, it is important to know that appraisals for certain loan types will stick with the property for a period of time. This is true for FHA and VA loans. Therefore, if your buyer was using one of those loan products you will want to eliminate those financing types until the original buyer’s appraisal expires.
Conclusion
A home appraisal is an assessment of a home’s condition and market value. This assessment is usually ordered by the buyer’s lender and is completed by a licensed appraiser selected by the lender. The homebuyer pays for the appraisal.
Home sellers can increase their home appraisal value by taking steps before the appraisal occurs. This includes putting the home’s best foot forward by cleaning the home, having the exterior looking well-kept, and staging the home to be attractive. Additionally, make the appraiser’s job easy by making it convenient for him or her to schedule the visit, get in the home, and access all areas of the home. Think of the appraisal as the most important home showing during the home sale process.
Home sellers have four options when a home’s appraised value is less than the agreed-upon purchase price. You can appeal that the value is revised, negotiate with the buyer to close the gap, lower the purchase price to the appraised value, or start over and put the home back on the market.