Should I get an appraisal before listing my house? Pros and cons to getting your home appraised before putting the property up for sale.
Q: I think you’re doing a disservice to your readers concerning listing your home with real estate agents. The best thing a homeowner/seller can do is spend the $350 or $450 and get an appraisal on the property. Letting a real estate agent set the price is a crapshoot.
If you get a contract on the property for $300,000 and the bank appraiser says it’s only worth $280,000 and the buyer has a mortgage, the seller must drop the price or the buyer must pay the difference – what a waste of time and energy.
I have a friend who remodeled a rental and did a FSBO [for sale by owner] on it – he had an offer of $190,000. I told him to get an appraisal – It came in at $215,000. He would have left $25,000 on the table. Had he gone through with the contract – I’m sure the bank would have appraised it for $190,000.
My point for homeowners is – spend the money and get an appraisal before you list your property for sale with a real estate agent.
A: Thanks for sharing your comments, but we look at it from a different vantage point.
Should I Get an Appraisal Before Listing My House?
While it may pay for some homeowners to get an appraisal, it’s a huge waste of money for the vast majority of home sellers. At the end of the day, no matter where a property is priced, if it is marketed appropriately, and enough prospective buyers know about it, it will sell for the “right price” regardless of the initial list price.
Years ago, we had some friends who were planning to sell their home. Before they talked to a real estate agent, they hired an appraiser. The appraiser came back with an appraisal of $800,000. Our friends became friendly with the appraiser and discussed how he had come up with that price. It turned out that the appraiser did some research and found what he thought were comparable homes between $700,000 and $900,000. The appraiser also told our friends he recognized the range was big, so he priced the home exactly in the middle of his range.
When our friends finally hired a real estate agent, that agent knew the homes the appraiser had chosen as his “comps,” but didn’t agree that with his final estimate of value, the so-called mid-point. She told our friends that she felt the home should be priced closer to $900,000.
Indeed, the home sold close to that price within a couple of weeks of listing the home.
The Appraisers Role in Real Estate Transactions
This anecdote leads us back to your comments. We do agree that appraisers have a role in real estate transactions, but the bank’s appraiser generally starts off knowing the sales price for the home. From there the appraiser will try to get to the sales price both sides have agreed to with the available, local comparable sales.
Having said that, we agree that there are times that sellers will want to get far more for their place than what the market says it’s worth. Other times, listing brokers may tell sellers what they want to hear – that their homes are worth more than what they are actually worth – with the hope that they land the listing.
So, the system isn’t perfect. In the ideal world, appraisers would give estimates on what a home should list and sell for and hit the nail on the head every time. And, which agent wouldn’t like to pinpoint the exact sales price of a client’s home.
In either case, we have to assume that we are working with quality appraisers and quality brokers, that they have sufficient information to make a good recommendation on price to the owner and that the owner’s own bias doesn’t affect that owner’s decisions in pricing the home.
The one thing we know for sure is that it will cost money for the home seller to obtain an official appraisal and real estate agents will do essentially the same work for free. It’s called a “comparative marketing analysis” and they do it for free because they hope to win the listing.
In Sam’s practice he has come across a number of deals where buyers negotiated a price with a seller only to find out that the appraiser couldn’t find enough recent comps to support that price. (In some cases, a second appraiser was able to match that price.)
Appraising property is more of an art than a science. With all the information out there, most buyers have a good sense of what they’re willing to spend on a home and what a home is worth to them. On the flip side, many sellers know what other properties in the neighborhood are selling for, but have a tendency to inflate the value of their own property. In a perfect world, overpriced homes will sit on the market, unsold, until their prices come down and homes that are underpriced may end up in a bidding war.
And, that’s how it should work. Certainly, there are a limited number of homeowners who live in areas where few homes are sold or whose homes are unique in some way – they might benefit from hiring an appraiser. But in urban markets where there are a fair number of sales, a good real estate broker with solid knowledge of the area should have an excellent idea of what a home should (and likely will) sell for.