Some sellers have an appraisal performed on their property before they put it up for sale to determine the value of the property. A seller then uses the appraisal as a selling tool; a cornerstone for determining the home’s value and validation for the buyer that the home is worth what the seller is charging. As a buyer, you should take these appraisals with a grain of salt. They can be helpful in setting a ballpark figure for cost, but you should do your own footwork before you agree on price.  

Appraisers aren’t Inspectors

First and foremost, it’s important to remember that an appraiser isn’t an inspector. A good residential appraiser who has years of experience and has inspected many homes can learn to spot some of the most serious home problems, but it isn’t an appraiser’s job to conduct a home inspection. Appraisals assume that the underlying structure and foundation of a home is in good shape and price the home accordingly.

You should always have an inspector in to review the property before you close negotiations on price. An inspector may find issues with the property that will drastically affect its price; from $10,000 repairs to $40,000 structural issues. You would then want to negotiate that much off the appraisal to arrive at the home’s true value.

Not All Appraisers Agree

Another thing to note is that not all appraisers agree. A property appraisal can be subjective. You may have two appraisers in to appraise your home and get appraisals $5,000 apart, $10,000 apart or get even more drastic disagreements on price. It’s important to remember when you’re dealing with a seller who has an appraisal that the appraisal is only a ballpark figure. If a seller gets an appraisal listing the home’s value at $160,000 and is unwilling to budge a penny below that number, you might want to walk away.

Agreeing on value is the basis of home-buying negotiations. Home values are subjective. You can start by looking at comparable properties and negotiate on those values, but the actual value of amenities varies depending on person. Know where the question of opinions of value versus facts comes into play in negotiations. 

What are facts?

Everyone knows what facts are, right? When it comes to home buying, facts aren’t that obvious. When you’re looking at a comparable home that sold for $300,000, make sure you don’t confuse fact with opinion. Facts include:

• The home sold for $300,000;
• The home had three bedrooms and two baths;
• The home had a two-car garage;
• The square footage was 2,500.

What are opinions?

When negotiating for a home deal, many people confuse opinions with facts. This disconnect can cause serious disagreements between buyers and sellers, and even real estate agents. Opinions are subjective, not objective like facts. When looking at a comparable sale, opinions include things like:

• The home is worth $300,000;
• A home with four bedrooms is worth more;
• A home with a two-car garage is worth less;
• A home with more than 2,500 square feet should sell for more.

While many people draw conclusions like this from facts, the reality is that they’re actually opinions.

Look at the first ‘opinion’ versus its corresponding fact. A home may sell at $300,000 because the buyer values it for $300,000. Maybe that’s higher or lower than the current market value. If the homeowner was interested in a quick sale, $300,000 might well be less than the home is actually worth. Conversely, if the buyer was set on owning that specific home, $300,000 might be an inflated value – it could be that the home is only worth $280,000.

Differences in amenities also hold a subjective value; an opinion of value. For example, if you’ve got three kids, you might feel that a 4-bedroom home is worth more than a three bedroom home. It’s certainly worth more to you.

On the other hand, if you don’t have kids, and want a home with a larger master bedroom, an office and a guest bedroom, the three bedroom home might be a better choice. The rooms might be larger, and the fourth bedroom might not be worth the extra cost. That’s a difference of opinion of value.

Keep in mind that your opinion of value is based on subjective factors, and try to be as objective as possible when you’re evaluating home pricing. Understand that you might have a different opinion of value from the homeowner, and be prepared to pay for your opinion, or walk away from it if it’s not worth the asking price – to you.

Many of the home valuation tools that you find on the Web don’t offer you the objective input that you need to truly determine an accurate home valuation. These tools are often referral sources for particular real estate agents, and only include a small sampling of properties specific to the real estate agent or company. To truly get an accurate home valuation, you need an objective sampling of comparable properties.  

Use multiple websites for home valuation.

One of the first steps you can take to make sure you get a fairly accurate home valuation assessment is to use multiple websites in your home valuation efforts. You can still use the tools at a website, but use the tools at another website, too. Use at least three or four home valuation tools on various websites, and see whether or not the tools agree with one another.

If you get a close, but not exact, number from the different sources, you probably have a fairly accurate assessment of your home’s value. However, if you get the exact same number from every website, you may just be looking at multiple websites that pull data from the same source; which isn’t objective at all.

Check out property tax databases for home value data.

Another way in which you can use the Web for effective home valuation purposes is to use property tax databases to get a rough idea of the home values yourself. More and more cities and county offices are making their tax assessment databases available online.

You can sift through this information yourself to find out what similar properties have sold for in your neighborhood over the past few years. This also gives you an idea of the price trend in the area you’re considering; are prices generally going up, or down? Doing this footwork yourself definitely takes more time, but generally yields more objective results.

In addition to homes that have already been sold, a good CMA gives you information about other properties that are currently for sale. Even if properties don’t meet your criteria, they may be valid considerations for a CMA so that you can objectively evaluate whether the home you’re looking at is worth the asking price. Make sure you understand what the “Currently for Sale” section can tell you.  

Comparing your property to others on the market.

You don’t just want to compare your property to homes that have already sold; you also want to compare your dream property with other homes that are currently for sale. Maybe you’ll find out, from looking at a CMA, that your home is the only four bedroom/three bath home currently for sale, and only one has sold in the past year. That could mean that the home is atypical for the market, and if you need the extra bedroom, you might want to pay more for it.

Likewise, a CMA can tell you whether the asking price for your dream home is in line with other existing prices, and how long comparable homes have been on the market without selling.

Prices relative to earlier sales.

Comparing the “currently for sale” section to the completed sales gives you important information about trending sale prices. If the majority of the comparable homes on your CMA sold for $350,000 six months ago, but are listed for $320,000 now, home values may be falling. Likewise, an upward trend in asking prices means that property values may be rising, and you might just have to pay more for your dream home or look elsewhere.

Comparing price trends can’t tell you how home values are going to behave in the future, but they can give you an important understanding of the home you’re considering, and a basis for deciding whether or not the neighborhood offers the buying value you want or if you should look elsewhere to stretch your buying bucks.

One thing you’ll probably see in your home-buying process is a comparable market analysis. When you’re nearing the offer stages, your real estate agent should be able to provide you a CMA to help you make your decision. What’s a comparable market analysis, and what does it tell you?  

What is a CMA, exactly?

A comparable market analysis is a report that shows you similar properties in your neighborhood, what they sold for and when, and gives you some relevant data on the properties. The purpose of a CMA is to help you evaluate your dream property compared to other sales in your neighborhood, and decide whether you want to make an offer. If the home is priced too high, based on the CMA, or lacks some amenities that are common in other homes in the area, you might want to keep looking.

What’s important on a CMA?

A CMA gives you several important pieces of information:

Date sold: The sell date matters when you’re looking at a CMA. Properties that sold during the winter might sell for less, since it’s not typically prime real estate season, which means you could expect to pay more in the spring or summer. Also, if it’s been a while since the last comp in your neighborhood sold, your data might not be accurate for today.

Sale price: The bread and butter of a CMA. A big part of the purpose of examining a CMA is comparing your dream property’s price with other sale prices to decide whether it’s valued properly, or it’s a price you’re willing to pay.

Bedrooms and bathrooms: Basic data that lets you know how comparables compare to your dream house. More bedrooms and bathrooms generally equals a higher price.

Condition: Condition matters. If the home you’re looking at is in excellent shape, it’s probably worth more than a home in fair condition. Consider condition when you’re comparing prices.

Parking: This is a factor in city dwellings where parking is at a premium. More parking generally has more value.

Comments: Comments typically include information like square footage, price per square foot, or remarks about things that differentiate the property, either positive or negative. This gives you additional data with which to compare your dream property.

The appraisal process is a key step in finding out whether or not you’ll be approved for a home loan. The appraisal tells lenders all about the state of the home, how it compares to other homes in the neighborhood and similar neighborhoods, and how much it’s worth. This is one of the key documents that lenders use when deciding whether or not to offer a loan, so you need to know what to look for on an appraisal – and what can go wrong. 

Asking price too high.

The biggest issue that you might see on an appraisal is that the appraisal value is too low. This can happen for a number of reasons. One possible explanation is that you’re overpaying for the property. Appraisals compare properties with similar properties in the area, so if the seller is asking for more than the property is worth, an appraisal reveals it. If the asking price is too high, you can take the appraisal back to the seller and attempt to negotiate a lower price.

Appraiser doesn’t know your area.

Another potential issue with appraisals is that the appraiser might not know your area. This is especially an issue with the HVCC appraisal code, where appraisers may drive from hours away in order to evaluate your property. Lenders and real estate agents are currently restricted from using specific appraisers who may be familiar with properties, and the HVCC appraisal code is causing a host of problems with appraisal values coming in too low because appraisers are unfamiliar with the area. If you think the appraisal is too low, you and your lender may work together to find an alternate solution, or you may simply be out of luck due to the HVCC appraisal code.

Issues with your property.

Finally, an appraisal can come in too low because of potential issues with your property. While an appraisal isn’t an inspection, it may reveal things that lenders would consider to be a problem. You should still order a separate inspection on the property, but the appraisal can point to potential problem spots. You can use issues found on an appraisal to negotiate a lower sales price with the seller, or you may decide that you don’t want to deal with a property that has issues and move on to find another home.