Monday, September 6, 2021 / by Karri Bedor
There are 5 main criteria appraisers use to determine the value of a home:
4. Additions or Renovations
5. Recent Sales of Comparable Homes
As a buyer, when you make an offer, keep this criteria in mind. For example, if the home you are looking at is much nicer than the surrounding homes, there is a good chance the home will lose value compared to a home that may be of lesser value than the surrounding homes. An addition adds square footage and value to the home as do certain renovations. Appraisers use current comparable properties to determine value, so it’s important to know the market you are in when purchasing a home. Are homes selling high (seller’s market) or is it a buyer’s market and sellers are in competition to price their home to sell. Agents should be sure to provide appraisers with updates and special features they may be unaware of.
If the appraisal comes in low, your best strategy is to persuade the seller to lower the sales price or split the difference of the home’s appraised value and the offered price. As an agent, this is where your agent will help negotiate.
You can also appeal the appraisal assessment. Your agent would work with you to find comparable properties to support the price and send these to the lender to share with the appraiser. It is ultimately up to the appraiser to determine the property’s value.
You can ask your lender to request a second appraisal, but the cost is on you, unless the seller would agree to pay for it.
The last option would be for you, the buyer, to bring the difference in cash to closing.
The Offer to Purchase Appraisal Contingency does give the buyer the opportunity to walk away from the sale if the home does not appraise and the buyer does not want to negotiate with the seller.
As a seller, you obviously want your home to appraise at the offered price. The condition of your home is the best opportunity you have to help meet the appraised value. Make sure any work that was started is complete and the finishes are done well. Anything that needs to be repaired or replaced should be done prior to the appraisal. Tidy up as much as possible and create nice curb appeal. Minor repairs should be taken care of - tighten door knobs and handrails, fix screen doors and exterior doors and locks, replace/repair deteriorating items. The home should look appealing both inside and out.