Pros and Cons Of A Pre-Listing Appraisal

Pre-Listing Appraisal Pros and Cons

A pre-listing appraisal is one that is done prior to listing a home for sale. Its purpose is to provide a professional opinion of value in order to set a market-based list price.

I make the distinction of a market-based list price for a reason. So many times a listing price is based on factors not even related to market value.

Some of these factors include emotions, confusion about cost and value, as well as hearsay about neighborhood sales. These factors can cloud the issue about what a home should be listed at.

Whenever a list price is based on non-market related factors this can negatively affect how much the home sells for and how long it will take to sell it. The reasoning behind a pre-listing appraisal is that the value arrived at will help sell the home for the highest market supported price in a reasonable amount of time.

Today I’m going to look at some of the pros and cons of getting a pre-listing appraisal so that homeowners and real estate agents can make an informed decision about whether to use this often misunderstood tool in selling a home.

Cons Of A Pre-Listing Appraisal

Cost – There is a cost of getting an appraisal. Appraisal costs vary based on numerous factors which you can read about in my previous article.

Rather than looking at it as a cost, it may be better to consider it as an investment. When you weigh the appraisal cost against the potential reduction in days on market, as well as accurately pricing the home, it makes better sense.

It is highly likely that if a home is priced too high in the beginning then there is a possibility that the final sale price will be less than what you could have sold it for if you had listed it at a lower price to start.

It’ll upset the owner – Sometimes the truth hurts. In a situation like this if you don’t face the truth it could hamper your efforts to sell your home for the best price in the most reasonable amount of time. Getting a pre-listing appraisal may reveal to the owner that the money they spent on their home cannot be recouped when they sell.

The idea about cost and value is difficult for the owner to understand and accept. Not all of the cost of improvements and renovations will give you a dollar for dollar return.

When this is understood the owner will have more knowledge and wisdom to make smart listing decisions.

Your agent can price your home – Many agents are very capabale of performing a CMA to come up with a listing price on most properties. Where a pre-listing appraisal is helpful is when the property is different or the agent cannot find comps (see below).

Read my previous article if you want to learn more about top reasons for getting a pre-listing appraisal even if you have real estate agent.

Not transferrable to the lender – True, most banks will not accept a private appraisal that they have not ordered. They use to do this before the crash in 2008 but not anymore.

Since the buyer pays for the appraisal in a mortgage transaction this really does not affect the seller. As I stated previously, the appraisal is more of an investment because of the positive results that it provides.

It does provide value for the buyer because sellers can show buyers what it appraised for and this will give them peace of mind that they will not go through the whole process and then have the deal fall apart when the house does not appraise.

Pros Of A Pre-Listing Appraisal

It helps you have accurate square footage – One of the advantages in getting a pre-listing appraisal is that you will know the accurate square footage of the home. This helps in pricing and insures that there will be no issues related to square footage when the mortgage appraisal is done.

A potential problem I have witnessed is when the listing agent thinks the house has more square footage than it does. This typically results in a list price and contract price that is higher that is should be.

These are the situations where appraisals usually come up lower than the contract and deals fall apart. This can be avoided with a pre-listing appraisal that has accurage square footage.

Helps to establish a list price when there are no comps – Appraisers have the market knowledge to know where to look for sales when none are available in the subject neighborhood. Whenever sales are scarce it is a good idea to look at sales, listings, and pending sales from a variety of competitive market areas to get a broad picture of the market.

Helps to establish a price for a home that is much different than the others – Let’s face it, not all homes are the same. A home that is like all the others is easier to price than one that is very unique. Knowing where to look and what to look for is a skill a good appraiser will have.

Sometimes it may not be possible to find an exact match to the home being appraised but knowing what you can use as a comp and from what areas you can look is helpful in the valuation process.

Prices the home to the market and not unrealistic expectations – A pre-listing appraisal gets a fresh set of unbiased but expert eyes involved. An appraiser is the only impartial party to a home sale transaction.

This can help price the home more realistically. Buyers will not have any warm and fuzzy feelings about the house and want to pay more for it than they can get another similar home for so why price it this way? That’s what pricing to the market means.

The home had recent extensive renovations – I’ve seen numerous situations where homeowners have made extensive renovations to their home so they did not know exactly how big it was nor how much they could ask for their newly improved home.

If they had gotten a “subject to” appraisal before making the improvements they would have a better idea of what effect on value the improvements would have. A pre-listing appraisal in this situation will help them price it to the market and avoid a long marketing time and excessive price reductions to get it to where buyers will consider it.

Conclusion

As in every situation, there are always pros and cons that need to be considered. Pre-listing appraisals are definitely not needed in every situation but knowing when it can facilitate the sales process is crucial.

The cost of the appraisal is minimal when compared to the value it brings to the sales process. If I can answer any questions about how an appraisal may be beneficial to you please give me a call and as always thanks for reading.

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