Pros and Cons of a Pre-Listing Home Appraisal

We recently posted an article outlining the benefits of a pre-listing home inspection. Many agents firmly believe that the investment for an inspection is a solid decision, and writing that piece got us thinking about how we would advise clients regarding a pre-listing home appraisal. Typically, a home appraisal is conducted by the buyer’s lender during escrow to make sure the home is really “worth” what the buyers are paying for it – most often with borrowed money in the form of their mortgage.

The appraisal is the lender’s safety net to catch over-inflated market values and also a way to recoup their losses as much as possible if the homeowners ever go into foreclosure. Some must admit that enthusiasm for the pre-listing appraisal is much less than the pre-listing inspection. There is very clear evidence in terms of the benefits of the inspection prior to listing, but the appraisal is a bit trickier. It is completely worthwhile in some cases, while in others it is, quite frankly, a hassle and waste of money.

We think the simplest and most organized way to sort through this topic by weighing the pros and cons of the pre-listing appraisal. This information is very similar to the way we present the idea to clients. We try to remain objective because the decision is always left to the homeowners.

Pre-Listing Appraisal Pros

• ·         The professional appraiser’s opinion is credible as long as any relationship between the appraiser/agent/homeowner is disclosed if necessary. This point is included because there are quite a few realtors who are licensed appraisers, and no one wants to get the feeling a colleague is trying to skew data for a friend.
• ·         The appraisal “backs up” the list price of the home, especially is extensive remodeling has been done (i.e. a flip house) or the home has valuable, unique features that comparable homes lack.
• ·         This step is beneficial for sellers if the neighborhood has seen a recent substantial rise in property values.
• ·         The appraisal provides data to back up the real estate agent’s recommended price according to a comparative market analysis. This might help prevent a deal-breaking low appraisal from the buyer’s lender while the home is under contract.
• ·         The appraisal will accurately calculate the home’s square footage, which is very helpful for buyers in space planning and considering price per square foot.
• ·         Sellers can include appraisal packets for interested buyers with the home’s data sheets during open houses and showings. This qualified data can increase buyer confidence in the home tremendously.
• ·         If you are an investor or homeowner selling for sale by owner, the appraisal will give you access to the information typically used by a realtor to conduct a comparative market analysis. In this situation, an appraisal would add a level of professionalism and transparency that buyers need when considering a FSBO.
• ·         The appraisal can provide some effective home improvement ideas to boost value if you’re not in a rush to sell. Make some recommended improvements, allow the home to appreciate for another year, and then sell for a higher price.

Pre-Listing Appraisal Cons

• ·         Buyers don’t often agree with appraised value. Remember, the current market dictates what a home’s price and value in terms of sales. That doesn’t always match up to the appraised value in a down market.
• ·         The appraisal will not necessarily pinpoint what your home will sell for. Some people keep that appraisal number in their minds and will not negotiate with offers. That is a mistake if you really need to sell the home.
• ·         An appraisal can be expensive, often in the $300-$500 range, but the price can spike to over $1,000 in some markets. While this is expensive, so is a price reduction for an over-inflated list price that costs both time and money.
• ·         Appraisers often value features in a home for lending purposes, so if the valuation number comes back low, you could have a difficult time listing and certainly selling the home at a higher price.
• ·         No valuation is totally objective. Appraisers admit that techniques can be used to back up opinions about a home with facts. What you might deem valuable as a homeowner, an appraiser might overlook or share a different opinion based on his or her knowledge and experience.
• ·         A real estate agent’s comparative market analysis is often just as (or more) accurate than an appraiser’s data in terms of pricing. Agents have access to the same information and could be privy to more current sales records, so consult with your agent before paying an appraiser.
• ·         The buyer’s lender will still require their own appraisal prior to closing. That step is non-negotiable and just part of every transaction. So, a seller’s pre-listing appraisal doesn’t save a step for anyone.

Clearly there are benefits and drawbacks to consider when deciding whether to invest in a pre-listing appraisal.  It’s a task that is best to consider on a case-by-case basis because it can affect the sale of the home in some situations. Additionally, since we’re discussing home appraisals, we want to share a brief article that many have found helpful in dealing with low appraisals.

A low appraisal can break a sale in a lot of transactions, but there are actions agents and homeowners can take to prevent and combat that setback. Take a look at this piece from Bankrate for more information. 

In the meantime, carefully consider your own pre-listing appraisal as you think about selling your home, and as always, email your ERA First Advantage agent anytime if you have questions or would like more details about anything we have discussed.