Everything You Need to Know About Appraisals

Despite real estate appraisal being part of nearly every real estate transaction, I’ve noticed that many clients (and even some agents) have a lot of questions about the process and purpose of property valuation. Below, you’ll find some of the most common questions with answers that will hopefully clear up any misunderstandings!

• Is the appraisal the same as a home inspection? No. The buyer hires their own inspector(s) to do a thorough investigation of the property’s condition and ensure that it meets their expectations. An appraiser is usually hired by the mortgage lender, paid for by the buyer, to ensure that the property value is worth at least what the buyer has agreed to pay. If a lender has agreed to provide a mortgage equal to 90% of the property value, they have to verify that the value is actually there in case someone defaults on the mortgage and they have to sell the property.

  • Some types of loans (e.g. FHA, VA, USDA) require appraisers to visually inspect the attic and verify that the utilities are functioning. Assume that you should have all utilities active unless your purchase contract specifies otherwise.

• My lender told me I don’t need an appraisal. Why not, and should I get one anyway? Many lenders have automated valuation software that can provide a general idea of a property’s value; if you are making a substantial down payment or purchasing a property below market value, your lender may decide to waive the appraisal. It saves the buyer money and saves the lender time. If you’re worried about the value, don’t be — there’s hardly any chance that a traditional lender today would assume a property’s value without plenty of evidence. If they’re agreeing to lend you the money you need to buy it, just roll with it.

• I just had my home appraised a few months ago for a refinance. Can’t we just use that report instead? Nope. Because property values can change over time, each appraisal is technically only valid for the date the property was evaluated. Also, appraisers must take the purpose of the appraisal into account when preparing the report, so it is not uncommon to see different values for refinances, purchases, divorces, etc. That might seem strange, but if you consider the lower risk of refinancing an existing mortgage for a homeowner who has already been making regular payments, it does actually make sense.

• I want to make sure the appraiser gets the “right” value — what information can I give them? This depends on who you are, but first, please remember: it takes a shocking amount of time and work to become an appraiser, so they might not look kindly upon someone else telling them how to do their job. Also, there are very strict appraisal guidelines that detail exactly what information can and can’t be considered.

  • The lender is not allowed to instruct the appraiser and will usually avoid personal contact with them; this is to avoid the appearance of undue influence (which was definitely something that used to happen a lot before the mortgage crisis and subsequent new laws).

  • I encourage sellers to provide a list of any substantial improvements made during their ownership, especially during the previous 5 years. Knowing the age of the roof, doors, windows, siding, etc. is always helpful. Any additions or major remodeling would also affect value. If you want to share the cost of those improvements, feel free…but it doesn’t matter. What you paid doesn’t impact the value from an appraisal perspective.

  • Agents, please know that the appraiser has access to the same data you do in the MLS and public records! So while it may be tempting to leave comparable sale information for every appraiser, please don’t waste your time or theirs unless the property is especially unique or you’re aware of a reasonably similar home that might be missed during a standard comp search. One exception that might be made during very competitive markets is providing information on the number of offers that were received and the relevant details of those offers (all over list price, etc.). This might help justify, for example, a picture-perfect mid-century modern home selling for $100k over list price and at least $125k more than any other nearby home with the same number bedrooms and bathrooms.

• Who can be present during the appraisal? The seller is always allowed to be present at their property, and the seller may require their agent (or the buyer’s agent) to be on the premises when any 3rd party is at the home. However, if you are present during the appraisal, let the appraiser do their thing — be available to answer any questions, but don’t follow them around. Pretend it’s a buyer tour and turn on all the lights, make sure doors are unlocked, and make it easy to access the major mechanics and the attic if necessary.

• Can I get a copy of the appraisal? If you’re the buyer who paid for the report, absolutely. If you’re the seller, no. When the lender has approved the appraisal report, you’ll be notified whether it is “good” or not (in other words, did it meet the value in the purchase contract?) and whether there are any conditions — these are repairs that could be required by an appraiser to ensure the property meets the minimum standard for that type of loan.

• The appraisal says the value is good, but subject to some repairs. Does the seller have to make the repairs or can they refuse? If they want to sell the property to this buyer, they need to make the repairs — and if they are unclear about any part of the conditions, definitely get clarification from the appraiser as soon as possible. However, a seller might decide that it’s too much work or expense. The buyer is usually prohibited from making any repairs to a property they are purchasing (unless they are already a tenant of the property, which is a fair exclusion in my opinion), but there’s technically nothing to prevent an agent helping out.

• Can I appeal the appraisal if I don’t like the value? While there is a process to appeal an appraisal, there are many factors involved and the success rate varies greatly (based on a quick Facebook survey of Cincinnati-area agents I did last night). Some agents recommend changing lenders instead, which would usually prompt a new appraisal. Others have had luck by using the right language: “please help me understand” rather than “what on earth are you looking at”. From my experience, it’s always worth a try, but don’t get your hopes up — discuss backup plans to be sure you know what your best options are.

Preparing Your Home for Sale

If you google the title of this blog post, you’re going to find a ton of advice and it’s all going to sound pretty similar. Most of it is not incorrect, but some of it is impractical, especially when you’re trying to use all available funds to purchase your next home while also juggling a full time job and shuttling your kids around town (for example). So here are my tips for your top priorities on how to get your home to show its best without (hopefully) breaking the bank or your will.

• Clean like you’ve never cleaned before, maybe more than once: scrub the floors, wipe down the walls and baseboards, make those windows and sills gleam. If that stained caulk in the bathroom just won’t get white or clear again, it’s time to re-do it (this is really simple and inexpensive!). Steam clean the carpets. And the curtains. And the sofa. Are you worried about being judged for your obviously used oven, refrigerator and dishwasher? You’re not wrong, so clean those too. Hiring professional cleaners for a one time deep clean might be worth the expense. You can head to the dog park for a day and come back to a neat and tidy home.

• Declutter, donate, and depersonalize: It’s time to go through all those junk drawers and garage shelves and start clearing out what you don’t need! If there are usable items that you don’t want to just throw away, donate them. If there are 10 pieces of decor on the wall, pare it down to 1 or 2. Box up the rest, or for family photos that you love but are ready to replace with more current pics, digitize them and keep the frames for later use. In fact, it’s time to box up anything you can live without seeing for the next 3 months: seasonal clothing, sports equipment, collectibles and keepsakes, etc. Buyers understand that you’re moving, so they’re not going to be shocked that you have a stack of boxes in your basement or garage.

• Complete your “honey do” list: chances are there are projects that you’ve had on your mind that you never ended up completing. If you never finished repainting the bathroom or replacing the flooring in the half bath, or if you already bought new outlets or register covers to replace the old ones, it’s time to get on that. There are probably local handyman services that can help you if the list is a little longer, and paying a few hundred dollars to complete finishing touches can make a huge difference to prospective buyers.

• If it’s broken, fix it: I’m sure you’re used to that faucet that drips if you don’t position the handle just so, but an inspector is going to make a note about it that is going to get some buyers believing that the plumbing is faulty throughout the home. If you have a non-working outlet, leaky faucet, door or window locks that don’t work, cabinet doors that don’t stay closed, or anything that might lead a buyer to believe you haven’t taken exquisite care of this home, please for the love of all the money you’re hoping to make on this sale…just fix it.

• Ask your agent about the best use of your fix-it dollar: if you are considering doing something more substantial to your home before selling (like replacing the roof, updating windows, or renovating a bathroom) and have a specific budget in mind, it’s time to talk to your agent about what buyers in your market are looking for in their next home. It might make more sense to have some items, like the roof, professionally evaluated rather than replaced. Or if that powder room is the last bastion of the 1970s in your home, updating it might have a huge impact. If you’re worried about a big ticket item that could turn away buyers and you can’t afford to fix it, you should probably get an inspection along with a quote for any repairs so that prospective buyers are prepared rather than scared.

But wait, you’re thinking, I thought this was going to be a short and easy list? If you’re questioning the necessity of any of the above, just look at it from a buyer’s perspective: if there’s something in your home that would be a turn-off in a home you’re touring, chances are other buyers feel the same way…so you need to address it.

How to Make the Most of a Seller's Market

All signs point to plenty of buyers looking to sell homes, but most areas of Cincinnati are seeing low inventory. Homes are going pending quickly, especially the best ones in "move-in ready" condition. If you've been thinking about selling your home, this may be a great time to get a custom market evaluation from me to learn what your home might sell for and how to best prepare your home to sell.

The most successful buyers have thoroughly researched their financing options and are ready to make an offer quickly after seeing a home. Most sellers will not accept an offer that does not have a solid mortgage pre-approval letter, or proof of cash funds. So, if you are thinking about buying and you have not yet started the pre-approval process, it's time to get on that! I have some recommended lenders for you on the Helpful Info tab above. If you are worried about affording a home, be sure to ask about available grant programs which offer money toward your down payment and/or closing costs. And if you want to buy but also have a home to sell, I can help you estimate appropriate timelines for marketing your home and finding the next one!

How Do I Change Utilities?

There's so much going on when you're buying or selling a home -- even more if you're doing both at the same time -- that it's easy to forget the details. Changing over the utilities is a fairly important detail, though: can you imagine moving into your new home, only to realize that the power has been turned off?  The general rule of thumb in Cincinnati is that the seller should contact the utility companies at least one week before closing to allow time for final readings to be scheduled. The buyer should also contact the utility companies during this time to set up their accounts; if you haven't had a previous account in good standing with any of these companies, you may need to provide additional information which can take a few more days.

You can also ask some utility companies about the average bill for an address when you're deciding whether to make an offer on a property. Usage is different for everyone, but chances are a very high number means that there is room for improvement in the efficiency of the home. Finally, television and internet service can vary by street rather than municipality, so you'll need to Google those options!