A friend of mine is refinancing his home due to the all time record mortgage rates right now. He isn’t using my favorite Austin lender which is a shame, and his appraisal came out jaw-droppingly low. I mean, not even in the ballpark of what I think his home is worth.
The interesting thing I learned at a recent class is that real estate appraisals are allowed to vary by 3% and still be considered the same. Crazy, but a product of the inexact science of home valuation – a home has so many variables that affect it’s market value – what someone is willing to pay for it – number of rooms, finish, construction quality (and perhaps more insidiously – the apparent construction quality), direction the lot faces and a multitude of other factors.
So it got me to thinking. I recently referred a client to another agent who better served his market, and in selling his home, the agent recommended getting an appraisal before choosing the list price. It makes sense right – if the buyer is going to get a loan (over 80% right now do) then their lender is going to get an independent appraisal of value, and this has to meet the contract price for the transaction to move forward smoothly. Now, the lender isn’t going to use the appraisal the seller paid for – they have to order an independent one. But it’s an extra data point that can help inform pricing.
Why don’t you just choose the list price the agent or the seller wants? For a home to be in the market, it has to be priced appropriately. Over-pricing in a flat or down market leads to worse results for a seller. And even if you get a buyer willing to pay over market value, their lender’s appraiser won’t condone it.
Also, not all agents like sellinghomes, some just like listings – homes for sale. I know that’s not ethical, but some agents like to have a sign with their name on it sat on a busy street for any prospective buyer to see, along with a giant phone number for prospective buyers to call. If the buyer doesn’t buy the overpriced home on the busy street, the agent whose face appears on the sign can sell them one of the 11,000 other homes available. And the longer that piece of personal marketing is out there, the agent gets to meet more and more buyers. The seller just gets relegated to second, third or fourth priority.
If there are three agents being interviewed to list a home, most sellers will be flattered by a high listing price from Agent A, rather than a realist selling price from Agent B. So that impacts the listing price that some agents will work with for a given home. As it is put so neatly in the Appraisal Tips For Consumers paper:
“Unlike some other real estate professionals, the appraiser performs a professional service for a fee rather than for a commission contingent on the value conclusion, the approval of a loan or the eventual sale of the property”
So should you get an independent appraisal as part of listing your home for sale? I think it’s a vital and independent data point. Whether you choose to do so before interviewing an agent is another matter.
Can your agent use the appraisal in your marketing? If it’s to your advantage, there’s nothing to say you can’t say “recently appraised at $xxx” and add the appraisal to your marketing materials. One of the big problems I see with people trying the FSBO approach is that they don’t have access to comparable sales data and don’t price their homes appropriately. If you’re going to sell your home FSBO, get an appraisal and put the sales price information out there.
Garreth Wilcock helps people sell their Mueller homes.