If you’re thinking about selling your house in Sacramento then you are probably trying to figure out what your house is worth. You’re probably trying to calculate what you could sell it for and what your remaining equity would be. Although that calculation is not that difficult, there are a number of factors that need to be taken into consideration before you can arrive at that sales price.
It is important that you look at your house realistically and know that at some point your house regardless of what you think it is worth, will probably need to be appraised before you actually can close. This article answers the question: Can appraisals affect the selling price of a house in Sacramento?
Long before planting a for sale sign in the front yard , most sellers first consult the internet to try to determine what houses are selling for in their neighborhood. Unfortunately the first thing they probably see are the values that Zillow, Trulia, Realtor.com say that their home is worth. They all list home values based on some back room algorithm created by some tech nerd that captures sales data from county records, recorded sales from the Title Companies and of course sales data from the regional Multiple Listing Services.
Know this, these websites and their algorithms are not an accurate estimate of your houses value as they have no way of comparing your houses, age, condition and location, let alone about 10 other factors that will allow for a more accurate valuation. They have no way looking at the maintenance needs or repairs and updates that your home has had deferred over the years.
The long and the short of it is that not all houses are created equal and yet short of just accepting a comparative market analysis (CMA) all lenders require an appraisal be performed as the best way to determine a houses value. The appraisal takes all aspects of the house into consideration. The square footage, the number of beds and baths, the lot size, it’s condition and location.
Appraisals Are Not Inspections
While appraisals are not inspections they sometimes feel like it and for good reason. All government backed loans including FHA and VA have as a component to their appraisals a livability standard. That includes a visual inspection by the appraiser noting that all repairs are made to the house. They will, want to see that all remodels and room additions have permits were built to code, that steps into the house meet certain standards, there is no dry rot around windows or eves, no cracked or broken panes of glass, no air gaps by front door. No leaks or visibility of leaks in bathrooms or kitchens, there are screens on every window, sufficient insulation in the attic and all appliances are working including the HVAC.
For the most part, most sellers dont have the privilege of dealing with an appraisal until they are already in escrow and it’s a buyer’s lender trying to determine the value of the house that is being purchased.
I can tell you from vast experience that while most individual appraisers actually try to help the house come in at value, there are others that are going to put your house through the wringer and nitpick every comparable sale that is available in the neighborhood.
Unfortunately for most homeowners they rarely experience the rigid appraiser before the house is in escrow and so an appraisal that comes in under value can be quite a shock to the sales process and often times it means that the sale will fall apart. A word of advice and caution to sellers, make sure that your house is move in ready with everything is fixed because the odds are that your house will face at least 2 inspections and one appraisal during the process. I have sold houses that lingered through three different appraisals before it actually got sold.
The Different Types of Appraisals
Believe it or not there are at least 5 different Appraisals that are available in the market today. While that may sound peculiar, they each establish a value for a specific real estate purpose and over 90% of all appraisals are done at the request of the buyer as a requirement from their lender. It also means that because the buyer has paid for the appraisal they are not required to show the results to the seller. In most instances the seller will only hear from their real estate agent that the house came in at value, or not. The 5 types of residential real estate appraisals are;
- Refinance Appraisal (For homeowners that are refinancing, typically the easiest Appraisal, many are just a drive by)
- Pre-sale Appraisal (Sellers will order an appraisal to help establish the Market Value before setting the Sales Price)
- Conventional Loan Appraisal (For loans with up to a 20% downpayment, typically the second most lenient Appraisal)
- FHA Appraisal (For government backed mortgages with minimal down payment, typically the second most rigid Appraisal)
- VA Appraisal (For veterans, typically the most rigid Appraisal)
What Happens if the Appraisal Comes in Under Value?
Once the house is in escrow, the appraisal of the house is a critical step in the process and if a house does not come in at value, the buyer has one of three choices; 1) exercise their financing contingency and walk away from the sale, 2) go back to the seller with a revised offer at a lower price or 3) come up with a lump sum of cash and pay the seller the difference to be able to complete the sale.
It is also important to note that appraisals that occur while in escrow are ordered and paid for by the buyer and therefore you will never see an appraisal come in above the value of the accepted offer. When you think about it is understandable since there is no benefit to the buyer or the lender to inform the seller of their market value assessment above the asking price or amount to be financed.
Appraisers are Supposed to be Independent
For the most part, sellers are in the dark for most of the escrow period including the inspections and appraisals. It is by design and most real estate agents like it that way. But the truth be told there isn’t much a sellers agent can do at this stage of the process anyway. As critical as the appraisal is in most real estate transactions, neither the lender or the real estate agents can have any contact with the individual appraiser for fear that they are accused of unduly influencing the appraisal process.
Since the mortgage meltdown in 2008, lenders are now supposed to be completely hands off and are not allowed to be in contact with individual appraisers prior to the actual appraisal report. Lenders are forced to contract with independent 3rd party appraisal management companies that then assign an appraisal to an appraiser. If there is a mistake there is an appeals process.
Appraisals and Sellers Markets
We have all heard that it is a sellers market and that real estate prices are continuing to rise throughout, Sacramento, Stockton and Modesto. Many buyers are seeing that interest rates are dropping slightly and are tossing their hats in the ring to become first time home buyers. Others are trying to leverage the equity they have in their existing homes and are trying to upgrade and yet others are just trying to liquidate unwanted property that they have held for years.
Each has very different motivations and yet the outcome of each has the same result. When a decision to sell a house is made all homeowners want to sell for the most amount of money while at the same time spending the least to get that done. It is a pretty simple concept, but in my line of business I see the results are all over the board.
As a seller in a sellers market you need to know that the house that is priced at the best value is generally going to be the first to sell. But, today’s market may be the best time to sell your house regardless of its age, condition or location. Every homeowner will struggle with the same process and I have written many articles that describe what homeowners go through to find that sweet spot when it comes to setting the price.
Can Appraisals Affect The Selling Price Of A House?
The short answer is always.
- There’s the asking price – the price you WANT to sell your house for
- There’s the appraisal or valuation – the price that an appraiser determines that your house is worth
- There’s the selling price – the price that someone is willing to pay for your house.
Remember An appraisal is just an educated guess.
They’ll look at several factors (including, but not limited to the number of bedrooms or bathrooms, whether the basement is finished or not, etc.). Of course, it’s just an educated guess based on research, and there are other factors that may influence the price beyond the appraisal.
The appraisal will highlight Comparable Properties in your Neighborhood. It will show you what other people are willing to pay for a house and often what they consider to be important factors in the area.
The appraisal will then help determine select an asking price. You might choose an asking price that is lower than the appraisal because your house needs some work.
The Bottom Line
The appraisal is a guide; an educated guess. But you should also be aware that the appraisal is not always correct. There are many factors that determine the sale price of a house and an appraisal is only a starting point.
Are you thinking about selling your house?
Why bother with an appraisal at all?
Why bother with showing your house to a bunch of strangers, and waiting month while they decide whether or not they want to buy. You can get a fair all-cash offer from me to buy your house fast… and then you don’t have to worry about getting an appraisal, or listing the house, or showing your house, or inspections or a lot of pay over who will pay for what and when. There doesn’t need to be a lot of back and forth and certainly no banks for lender approval. Just pick up the phone and give our team a call at (209)481-7780 or click here now and enter your information into the form.