An appraisal came in low this week. Appraisals come in low probably by the hundreds or thousands daily, but his past week an appraisal came in low on one of MY deals. It actually was a good thing, this time. How is that possible? I represent the BUYER. And the buyer stood firm that she would not pay one penny over appraised value. The seller had a choice, to reduce the price for the home, or to let the buyer cancel and get her earnest money back. The seller was ready to sell the house, so she agreed to reduce the sale price. If she hadn’t, the buyer would have cancelled and gotten her earnest money back….but would it have been a win for her? Not even close. The appraisal cost $450…and she wasn’t going to get that back. She had also paid $350 for a home inspection AND $60 for a termite inspection. She would have been out all of that, plus her dream house, if the seller hadn’t reduced. So it was a win, but there was some serious sweating going on until that was decided.
Appraisals are the second cousin you don’t know very well at your family reunion. Usually they are fine, come in where you expect them to, and are just a check mark on the list of to-dos when buying or selling a house. Sometimes though, that cousin….is the kind to ruin the entire party. Everyone can be getting along, enjoying things, excited even….and then the cousin, or appraisal, will step in and ruin EVERYTHING. This cousin of yours and mine has been ruining parties more often lately….and it is never easy to accept, or move through. Sometimes you know the cousin, or appraisal, might be an issue…but you are hoping things will still go smoothly, and other times you are so unconcerned you almost forgot about that cousin! That is when your party going south and having to end before even beginning feels the worst.
Why does this happen? You don’t always know, but here are a a few things I have learned.
If you are buying, or selling a tract house, and there are other homes in the neighborhood with the same floor plan, or similar that have sold in the past 6 months, the appraiser WILL use those sales. What affects the value given to each property? Here are a few items:
- A pool. A backyard pool usually only adds $5-10K though in the appraisals I have seen lately
- The size of the lot. If most of the homes in the neighborhood have 7000 square foot lots, and the subject property has a 10,000 square foot lot, some value will be given. If it’s smaller, an adjustment will be made down as well.
- Counter tops. This one has been frustrating to me…but in a very small kitchen granite countertops can be given a fairly significant value if compared with Corian or new laminate…even if installing new they cost about the same amount.
- Flooring counts…and the condition of it…hard wood and tile being worth more than carpet.
What doesn’t count? This might surprise you too.
- A brand new air conditioning unit
- New roof
- New windows
- Extra insulation in the attic
- New water heater
- Solar panels…especially if leased…though if owned I have heard they have been given value…but not every time or with every appraiser.
- Pool fences, or other safety measures like a pool net
I am sure you can see by looking at this list that some of the things appraisers DON’T give value for are very expensive items…expensive items that should be a GREAT investment. They will save the home owner money over time…as well as repair costs.
I am hardly the one to ever advise to not upgrade things that will be better for your pocketbook over time, and better for the environment, but if you are considering selling soon, it might not be worth it to replace your air conditioner if a repair will keep it going. Yes, a buyer may ask you to deal with it during inspections, but sometimes they don’t. Pools almost never add the value to the resale that they cost to put in, so only put in a pool if you are doing it for yourself and your family…and plan on staying a while.
Cosmetic upgrades…they count…as long as you don’t upgrade TOO much, or your choices aren’t too personal. What does that mean? If you are hoping to get $300,000 for your home, but want to replace your counters…stick to basic granite or quartz. You don’t need top of line marble to maximize your resale price. You also don’t need Wolf appliances. If you do put in marble and Wolf appliances…the appraiser can’t adjust your value to make that a good choice economically. If you do choose top of the line items, but in a color that no one other than you love…it may actually decrease the amount of money people are willing to pay for your home…because they will want to replace your choices.
If you are selling your house…by doing a careful market analysis a real estate agent will know if the appraisal might be a challenge. As values rise, I often see a beautiful home I KNOW will sell at a certain price, but might not appraise for that price. This is a lose/lose situation. Yes, the buyer may appear quickly, willing and able to pay full price for your beautiful home…contingent upon inspections, their loan….and APPRAISAL. Appraisals usually come back around two weeks after a contract is executed…sometimes later. At this point the repairs have been negotiated and both buyer and seller may be starting to pack up for the upcoming move after closing. Buyer wants the house, but if he pays over appraisal that has to be done in CASH…and that cash is not part of the cash that counts towards their down payment. Most buyers are unwilling and/or unable to do this, or not much over appraisal. So often seller either reduces their price, or tell the buyer to cancel the contract…and everyone is upset. Buyer is out inspection and appraisal fees, over two weeks time, and their dream home. Seller has to go back on the market, and explain why the contract they had didn’t work out. This is why when pricing your home, appraisals should be kept in mind. If the appraisal was an FHA appraisal, for an FHA loan, it stays with the property for 120 days. Meaning, if the seller finds a NEW buyer, but that buyer is also getting an FHA loan, they will have to use the appraisal that was already done for 120 days.