Even if you’re new to this whole selling-a-house thing, chances are good you’ve heard of a home appraisal. And if you know just a little about the process, you know that the appraisal—a value put on your home by an objective third-party expert—can make or break your home sale.
So with so much riding on this step of the home-selling process, you might be wondering: What does it hurt to go ahead and get an appraisal before you list? After all, it’ll give you an idea of what your home is valued at, and could even help you figure out an appropriate asking price, right?
Not so fast. While an appraisal is an important step in selling your home, there’s a reason it typically doesn’t happen until much later in the process.
In fact, getting an appraisal done too early is way more likely to end up costing you money than making you money. So what is an appraisal and why don’t you need one (just yet)?
Why do appraisals happen late in the home-buying process?
Simply put, home appraisals are meant for the buyer’s lender more than any other party. If a buyer needs a loan to purchase your home, the lender will require an appraisal toward the end of the loan application process just to make sure the home is actually worth its purported value.
“The collateral for the loan is the home, so lenders require an independent appraiser to inspect it and advise on its value,” explains Michael Drake, president of PMG Home Loans. “The appraisal is intended to make sure the home is in normal condition without obvious repairs needed.”
Plus, even if you’re a seller eager to know the appraised value of your home, remember this: The cost of the appraisal is typically seen as the buyer’s responsibility (since it’s a requirement for the loan). Furthermore, a lender isn’t likely to even accept your appraisal for its purposes; the lender will want to choose the appraiser to ensure it’s a truly unbiased third party assessing the property.
“Appraisals aren’t done at the beginning because the lender wants to assign the appraisal company that they work with,” says Julie Upton, a Realtor® in California’s Marin County. “And they may not accept an appraisal that the seller did at the time of listing.”
Appraisal value isn’t the same as market value
We know, the lingo can be confusing, but trust us on this one: There’s a world of difference between the “appraisal value” and the “market value” of your home.
The listing price is derived from the market value, which is assessed by a number of factors that don’t go into an appraisal—and many of which revolve around the current state of the housing market you’re selling in.
“The market value is what someone is willing to pay for a property—often influenced by emotion and how competitive the area is,” Upton explains. “In a multiple bidding situation, prices are driven up because buyers get emotionally caught up in the bidding process and may pay well over an appraised value. If someone really wants a property, they won’t care what the appraised value is, they simply want it no matter what.”
Meanwhile, the appraisal has more to do with “bones” and any significant historical changes made to the property, according to Upton.
While both real estate agents and appraisers use comparable sales (also called “comps”), and the two values might even end up being similar, the market value is the one you should be most concerned with as a seller. Got it?
So how is market value determined, if not with an appraisal?
Real estate agents will use comps to pull recent data on other houses (that are similar to yours) to arrive at a market value.
“We compare other properties that are close to this property, similar in size, construction, and condition, that have recently sold or are on the market,” Upton says.
Agents will also do a walk-through of your property and talk with you before arriving at a number you both feel comfortable listing at.
The final word
Getting an appraisal in advance isn’t just a waste of your time—it’s also expensive. Depending on where you live, appraisals start at $300 to $500, and if you own a lot of land or a very large house, you may end up paying a lot more.
“An appraisal can cost thousands depending upon how big the home is,” Upton says. “Land is also very hard to appraise, so sometimes a land appraisal is higher than homes.”
Getting an appraisal done ahead of time might even end up losing you money on your home sale.
“Getting an appraisal before putting your property on the market may actually cause you to get less for your property, as the appraised value could very likely be lower than what you believe is the property’s market value,” Upton says.
The final word? Save yourself some time and aggravation—let the buyer foot the bill on this one.