There are a handful of reasons why you may be having an appraisal performed on your house. The purpose, of course, is to establish an estimate of value. The top 5 reasons…
1) You’ve sold your home to a buyer who needs a mortgage and the buyer’s lender wants an independent appraiser to determine value, or “collateral worthiness”. Neither the home buyer nor the home seller gets to pick the appraiser. The buyer’s lender will make the arrangements and even they must rely on a random selection from an appraisal management co. Bottom line: No appraiser “cherry picking”.
2) You are refinancing a loan tied to your home and your lender wants an independent appraiser to determine value, or “collateral worthiness”. Same deal as no. 1 – your lender will arrange for an appraiser.
3) An estate needs an appraisal of real estate for estate tax purposes. Here the estate’s attorney will set up the appraisal.
4) A divorcing couple needs an appraisal of their house for property settlement purposes. Generally each party hires a real estate appraiser and works with the average of the two appraisals.
5) A lienholder needs to determine real estate value as part of a foreclosure action against the property owner. The lienholder will hire an appraiser to handle this, then add the cost to the borrower’s delinquent debt total.
So how do you prepare for an upcoming appraisal?
That depends… on who you are and what your stake is in the appraisal.
Someone selling their home just wants the value to come in at or slightly above the agreed upon sales price. Under the price and your sale could get derailed. To help prevent that from happening, prepare for the appraisal like you did when buyers were touring your home. That means make sure everything is clean and well organized and don’t bet on something looking “okay” or “holding up” until just after the appraisal. Make the investment in whatever improvement(s) need(s) to be made – the impact on your home value (and home sale) could be important.
Someone refinancing their home will likely want the value to come in as high has possible. The higher the value, the higher the loan amount. And even if you don’t want to borrow that much, it’s nice to know that you could. So prior to the appraisal, take the same steps recommended above.
An estate preparing to pay estate taxes will probably not want a high appraisal of real estate value… for obvious reasons. So don’t “make the investment” noted above. Of course, consult with your estate’s attorney to get legal guidance specific to your situation.
The divorcing couple negotiating a divorce and property settlement – both personal property and real estate – can be a tricky situation. That profound statement was graciously provided to me by Captain Obvious. Some of the variables might be a) who is living in the house now?; b) is one of the parties looking to buy out the other?; c) what sort of other assets and financial matters are included in the divorce settlement? Clearly the value of co-owned real estate will factor in here. Best to have attorneys and/or a mediator help to get this type of “appraisal of home” situation across the finish line.
A foreclosing lienholder simply wants real and accurate market data – just the facts, ma’am! Prior to the appraisal (likely an exterior, drive-by appraisal) there won’t be any “gussying up” or “watering down” of the property. If the lienholder ends up taking the property to a sheriff’s auction, they’ll want to have some sort of idea as to what it might sell for. And if it doesn’t sell at the auction, what might the lienholder (now the property owner) sell the property for at some point down the road.
Cost does not equate to value.
We discussed how minor improvements can make a difference to your home’s overall value. However, not every single improvement you make will raise your home’s value, at least not dollar for dollar. Understanding effective economic return is very important when it comes to home value. Before you make huge expenditures, do some research to see if those expenditures will help your cause.
Help your appraiser to help you.
As you just read, preparing for an appraisal can vary greatly depending on one’s stake in the process. If you can, share with the appraiser accurate info unique to your home, but only as it suits you. Example: “The roof is only 3 years old”; “The roof is 33 years old”; “I’ve tested for mold and here is the lab report”; “I’ve not done any lab testing”; “Here are reports on area home sales similar to mine”; etc, etc, etc.
Don’t like the results?
If you have questions or aren’t entirely satisfied with your appraisal of real estate report and value, contact the lender or the appraiser, depending on the type of appraisal. If you do have concerns, make sure you have data to validate them. Another option may be to hire another appraiser and get a second appraisal. And, of course, seek guidance from other parties involved in the process – real estate agents, real estate brokers, attorneys, and senior managers at the lending companies.
The author, Rick Sheppard, is a licensed real estate broker in Pennsylvania and a 32+ year veteran of the real estate trenches. He knows a lot because he’s seen a lot. If you have any questions about this or any real estate related topic, feel free to contact Rick at [email protected] and he’ll do his best to answer your questions.
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