Will your home Appraise?

I am not an Appraiser, but I just completed 99 hours of Broker training and we spent days studying the methods an Appraiser will use to verify the market value of your home.  In today’s market Buyers are buying the way Appraisers are appraising and very few are willing to pay more than appraised value for your home.

How do you price your home to sell in this market?

First, you sit down with your Listing Agent and review recent sales of comparable homes. Then, you have to be willing to listen and price your home properly. What is your choice? Either price your home to sell or decide to stay where you are for now.
In a slow market, what do you do when there have been no comparable sales in your neighborhood or surrounding area? That’s the challenge facing many sellers and their listing agents today. Learning more about how Appraisers do their job can be useful.

If your home is a 4 bedroom, 2 bath, 2800 square foot rancher with a 2 car garage on a ½ acre lot, an Appraiser will search to find other similar homes that have sold recently within the immediate area. Then the Appraiser will make adjustments up or down in value to compensate for differences. If your home is smaller than others that have sold, he will adjust the value of that home up; if another recent sale was a larger home, he will adjust that value down. It can be a complex task and the result is not necessarily what you will want to hear.

But I paid 30% more than that!

You know what you paid for your home and how much you’ve put into improvements over the years. It has to be worth more than the sum of all your efforts plus a profit right? Not necessarily. But, if you bought your home 30 years ago, have maintained and updated it as needed, you will sell if you price it right. A good property priced appropriately for the market will always sell.

But I have an in-ground pool!

Some improvements will add more to the value of your home than others and it has to do with the value to today’s buyers not the cost of the improvement itself. An updated Master Bath or a new kitchen will appeal to more buyers than a pool in the back yard.
Ask anyone who has sold a home recently and they will tell you that the biggest hurdles today are:
•    Your Buyers getting financing approval and
•    Your home appraising for the contract price
It’s really the same hurdle because the bank will only lend 80% of the appraised value to the Buyer and even a Cash Buyer does not want to pay more than the current value of a home.

The Appraiser is hired by the bank or mortgage company to protect their investment. In case the Buyer defaults, they want to know that they can recover the remaining loan balance. Does it matter that you and the buyer came to terms and agreed on a certain selling price? Not really, unless your buyer is paying cash and is willing to pay the negotiated price despite a lower appraisal.

Always think about selling when you buy

One of the basic principles of value is CHANGE. Nothing stays the same, but if you think about selling when you buy a home you may avoid the extremes. A home needs to be updated over time. Compare it to staying fit. It’s easier if you do it regularly over time than to decide at age 60 to begin working out, drop 50 pounds, etc.

Here are a few of the Basic Principles of Value that affect people the most:

  • Conformity – You may be a rebel, an individual with your own style who hates to look like everyone else. When it comes to real estate however, it doesn’t pay to be the most unique home in your neighborhood. In a community of nice ranch homes, the soaring contemporary twice the size will not sell for its maximum value.
  • Contribution – Remodeling an outdated kitchen or bathroom will contribute value and probably help maximize the selling price of your home. Adding an in-ground pool or a greenhouse or a bowling alley in the basement may not add any value.
  • Regression and Progression – Don’t ever buy the biggest or nicest home in the neighborhood. Its value will tend to fall or regress into the same range as the less lavish homes. Do buy the more modest home in a really nice neighborhood and watch your value rise or progress.
  • Increasing and Diminishing Returns – Don’t over-improve your home. While a remodeled kitchen or bath might increase the value of your home, adding restaurant-quality appliances or gold faucets will not result in a higher selling price.
  • Substitution – We all think our home is better than the one down the street. In reality, this principle of substitution teaches us that the value of your property is set by the cost of an equally desirable and valuable substitute property. If the other home is reduced by $20,000, your probable sales price will be affected.
  • Supply and Demand – When the inventory of homes for sale kept growing and sales slowed, the balance of supply and demand got out a whack. As supply increased, value decreased. Sellers who adjusted their asking price quickly got ahead of the decline and managed to sell. Others decided to wait it out anticipating a recovery in the housing market that has yet to be realized in many markets.

The best advice I can give you is to be prepared. The Girl Scout adage is true today – Be prepared and you won’t be caught off-guard by an offer that is lower than you expected. Do your homework, work with a professional REALTOR® and understand that the principle of CHANGE doesn’t just go down. Eventually, what goes down must go up. But how and where do you want to live in the meantime?

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