5 Mistakes To Avoid After Getting a Pre-listing Appraisal
This week I thought I would share with you something I have seen happen in the past. I provide pre-listing appraisals to home buyers to help them in coming up with a list price for their home.
I have noticed on some occasions that the owner decides not to go with the opinion of value in the appraisal. While they have every right to do so I thought I would look at some reasons they might make this decision in the hopes that it might help sellers decide if they are a good candidate for a pre-listing appraisal.
Let’s take a look at some of the main reasons sellers get a pre-listing appraisal and then not use it
1) Out of touch with the market- It’s important to keep in mind when selling your home that you must know what is happening in the local real estate market. This includes knowing what other similar homes are selling for and actively listed at.
Buyers these days are more informed than in the past and they know what the comparables are selling for. This information is readily available online so if potential buyers are using it then sellers should also be aware of it and factor it into their list price.
If you are not in touch with what other similar properties are selling for then the appraiser’s opinion of value may not make sense and you may decide it is not realistic or high enough. You need to keep in mind that the appraiser is an unbiased third party providing a professional opinion of value based on sales trends in the area.
You should also ask yourself when deciding to get a pre-listing appraisal whether you will trust them and follow through with their opinion of value. If you decide you don’t want to do this then you may not be a good candidate for an appraisal.
2) Confuse cost with value- Market value reflects what buyers are willing to pay for a home. Sometimes what someone is willing to pay may not line up with the costs of the improvements you’ve made to the home.
Many sellers will spend thousands of dollars on improvements that they have no chance of getting back when they sell. Perfect examples of this are swimming pools and landscaping.
You rarely get the money back that you invest in these two types of improvements. It is easy to spend a lot of money for these items so you should ask yourself if you’re okay with possibly not getting your money back.
Adding the cost of the improvements to what you think your home is worth may not reflect true market value. If you choose to get an appraisal it may reveal that the improvements did not add dollar for dollar value on the amount spent.
3) They’re really not serious about selling- Some people may not really be serious about selling their home. Who would order an appraisal if they weren’t serious about selling?
A seller may think that a pre-listing appraisal may “back up” there unrealistic and high expectations. When they see the appraisal does not provide support for their preconceived notions they probably will toss it aside and not use it.
If you have this mindset then you probably shouldn’t waste the money getting an appraisal.
4) They are letting their emotions get in the way- As I stated previously real estate appraisers are trained to be neutral when appraising a home so in that respect they have an advantage over the owner.
For most people, it is difficult to separate your emotions when making the decision to sell your home. When this is the case you may think your home is worth more than it is.
Your emotions may collide with the appraiser’s unbiased value opinion. When this occurs you will probably decide not to go with what the appraisal report says and if you do then it will be a total waste of your money. Again, you need to ask yourself whether you will trust the appraiser’s opinion and neutrality.
5) They have unrealistic expectations- Having unrealistic expectations can be tied directly to your emotions. The feelings you have about your home may lead you to believe it is worth more than it is which will then result in pricing it too high.
Being in touch with the market as I noted in #1 can help our expectations be more realistic. Keeping an eye on nearby homes that have sold or are currently for sale will give you some insight into home prices and where they are at.
Getting second-hand information also may contribute to unrealistic expectations. I had a situation in the past where I was appraising a home for a seller who had already had their home listed but they were not getting any interest from buyers.
They decided to get an appraisal and during my research, I found out that one of the nearby sales that the owner was using to price his own home had actually sold for less than he was told. The seller of the recent sale had puffed up the price higher than what he actually got.
After I finished the appraisal the home went under contract a week later. Inaccurate information can help you have unrealistic expectations so make sure what you are being told is true when it comes to sale prices.
Conclusion
As you can see, there are many reasons why a seller may end up not using a pre-listing appraisal after they get it. The common thread here is that your idea of what your home is worth may vary from what the appraisal indicates.
You must first determine how you came up with your opinion and then compare it with how the appraiser arrived at their value estimate. I think you will see that the appraiser based their value opinion on market data rather than emotions or inaccurate data.
If you are willing to accept the appraiser’s expertise then a pre-listing appraisal can help you in the selling process and the value it provides will exceed its cost. If you have any other questions feel free to contact me and as always thanks for reading.
Great post Tom! I sometimes see this when I complete pre-listing appraisals. It’s a shame for a homeowner to hire a professional to help them, only to ignore what they learn. It’s like going to a doctor, who prescribed medicine to us, and we refuse to take it. Thanks for your great insights!
Thanks, Jamie, great analogy! It takes the right frame of mind for a seller to get a pre-listing appraisal and then use the information to help them or it will just be a waste of money.
Hey Tom, good post. I’ve run into the same thing recently. A real estate agent who sells new homes hired me to do an appraisal on her remodeled house prior to listing it. I came in nearly 10% below where she thought it should be but there was a fair bit of uncertainty in the value because of locational issues and lack of sales. She went with her higher price and the home still sits three months later in a market where marketing time averages 30 days.
It’s hard to be neutral when you have skin in the game.
Wow, yeah that sounds familiar. Sellers should have the right frame of mind when ordering a pre-listing appraisal or they will end up wasting money. I think that sometimes they may feel that the appraisal may support their high estimate and when it doesn’t they still want to go with their biased opinion. I have found that when they do price too high and it stays on the market for an extended period of time it can end up selling for a less than they initially thought.
Thanks Tom. It seems really hard these days to price according to the comps rather than what a certain website says. Often sellers will get a price lodged in their mind and it’s very difficult to come down from that. So the seller feels like he/she is leaving money on the table if anything less is accepted (when in fact it was never worth that amount in the first place).
That is so true, Ryan. Those websites can really give owner/sellers an unrealistic estimate of the value of their home. The funny thing is that they will probably end up losing more money than if they would have listed it at the lower value to start.