What Is a Home Appraisal and How Does it Work?

By Craig Donofrio

Posted on June 24th, 2022


Selling your home to a buyer who is using a home loan? You're going to need a home appraisal.

The home appraisal is a vital step for buyers who are using a lender, because the lender will not loan more money than it believes the home is worth. If you overprice your house, the lender can deny the loan, or only fund a certain amount. This can cause the buyer to back out of the sale.

Pricing your home is perhaps the most important part of a home sale. It's also one of the most difficult aspects of the entire for sale by owner (FSBO) process. If you're struggling to find a buyer, then there's something wrong with your marketing strategy. If that's the case, we recommend our friends at Clever Real Estate. Clever is a nationwide brokerage that will match you with top performing, local agents who can help sell your house for just 1%! You'll save THOUSANDS while getting the full service of a traditional agent at a fraction of the price.

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What Is a Home Appraisal?

A real estate appraisal is a professional valuation of a home. It takes place after you approve your buyer’s offer. The appraisal is the linchpin that determines whether or not the loan amount specified in the offer should be approved by the buyer’s mortgage lender.

How Does a Home Appraisal Work?

In most cases, your buyer’s mortgage lender will order the appraisal and an appraiser will contact you to schedule an appointment. It’s in your best interests to have the appraisal done as soon as possible so you can get the results and continue on with your deal.

When the appraiser comes over for your appointment, their goal is to examine the quality and condition of all the elements of your property. Though they will note any repairs that need to be made for the sake of adjusting the value of the property, their role is not to come up with a list of fixes. That part of the sale takes place during the home inspection.

» Learn more: Read this BEFORE your home inspection

What Do Appraisers Look For?

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There are a few things you can do prepare your home for an appraisal, including:

  • making any needed repairs
  • maximizing your home’s “curb appeal”
  • pointing out neighborhood amenities to the appraiser (parks, great schools, etc.)

It may be difficult to figure out what kind of repairs you need to make. You don't want to go overboard and spend months repairing every detail, but you do need to fix the things that will turn off buyers. A good real estate agent will be able to tell you what kind of repairs you should spend your money on and what things you can let go.

To get the most money out of your home sale, you want to set your price right and only spend money on necessary repairs. That's tough to do. If you're having trouble finding a buyer, Clever can help. Clever can match you with top-performing agents near you who can guide you through making repairs and setting an attractive home price.

Best of all, Clever can help sell your house for just 1% or $3,000. That's a fraction of the price of traditional real estate agents, who charge 2.5%-3%. With Clever, you'll get the full service of a traditional agent at a fraction of the price!

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Who Orders the Appraisal in a Real Estate Transaction?

The buyer's lender orders the home appraisal. This is the only appraisal the lender will use. You can order your own home appraisal to help you set a price for your home, but there are laws preventing the lender from using your appraisal.

Potential Appraisal Outcomes

There are two basic outcomes than can occur:

  1. Your home is appraised at or above the agreed upon sale price outlined in your purchase agreement, meaning the sale can move forward.

  2. Your appraisal comes in at less than the agreed upon sale price outlined in your purchase agreement. If this is the case, what happens next?

What to Do if the Appraisal Comes Back Low

If you hear back from the appraiser and learn that your home has been valued at a lower amount than your agreed upon sale price, don’t worry. The lender isn’t going to provide more money than the appraiser feels the home is worth, but you still have a couple of options.

Negotiate with the buyer

If the disparity between the agreed-upon sale price and your appraised value is small, consider working out a deal with the buyer. If you know that he or she fell in love with the house, you might be surprised; the buyer may be willing to come up with the additional money out-of-pocket.

Request a second appraisal

If you believe your appraisal was done improperly, you can always dispute it and request another one from the mortgage company or pay to have a second appraisal done yourself. It is possible that a second appraisal will come back closer to your originally agreed-upon sale price.

Lower your price

If your appraisal comes back low, then it may mean you overpriced your house. This can cause problems, as the buyer may feel like the home isn't worth the price tag. And if they have an appraisal contingency, they can back out of the home sale, requiring you to find a new buyer. Instead, you can negotiate with the buyer to lower your price so the lender will approve the loan. But you also may want to take some things out of the deal. For example, if you were helping with closing costs, you might want to withdraw that assistance.

Negotiating with a real estate agent can be tricky, and you should have a good agent in your corner. Clever can help. Clever can match you with top-performing local agents from brokerages like Keller Williams and Coldwell Banker who can help sell your home for just 1%!

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Posted in Selling a House