Appraisal Mistakes Can Derail Your Home Sale
We’re getting into the selling season of the year. With Spring upon us and Summer approaching, many people’s thoughts have turned to selling their home. Before listing your home for sale I want to go over 4 appraisal mistakes you should avoid to make your selling efforts more successful.
Avoiding these appraisal mistakes will help the sale of your home go smoother because value related issues will hopefully be minimized. Let’s take a look at potential problems that can occur and what you can do to prevent them.
Avoid These Appraisal Mistakes
1) Inaccurate square footage- While there are many features that contribute value to a home, one of the most important is living area or square footage. When everything else is equal the home with the larger square footage will always sell for more.
Because of this, it is extremely important to make sure the square footage you represent your home to be is accurate. I see sellers making mistakes all the time on their square footage.
This can be avoided by knowing how to find what the accurate square footage of your home is. We’ll start with what is free and then work our way up to the methods that cost money.
- Old appraisal- The cheapest and easiest way to find the square footage of your home is by looking at an old appraisal. If nothing has changed in your home since the appraisal was done this is the best method. You will look for the gross living area (GLA) as this is the above grade heated and cooled living area. You do not want to add in finished basement area to the total square footage since this will overstate the square footage and could cause value issues.
- Use tax records- I only recommend using tax records in certain situations. Tax record square footage information is most accurate for one level homes with no basement. If your home is different from this then I would not use this method. Make sure the figure you take from the county information is only heated and cooled. Sometimes they will add non-living areas with the living areas but again this will not give you an accurate number.
- Get your home professionally measured- This is the choice that you will need to pay for. You can hire an appraiser (I do these) to only measure your home compared to getting a full-fledged appraisal. The sketch will break the areas down into the above grade living area (GLA) and the finished and unfinished basement if the house has one. In addition, the porches, decks, and garages will also be included.
2) Basing your list price on price per square foot- This, of course, is related directly to #1. If you use the price per
square foot metric to help price your home then you will need an accurate square footage number.
There are certain situations where using price per square foot to help price your home can be helpful but there are also times when it will not give you a good indication of value. Knowing when it’s okay to use price per square foot will go a long way in pricing your home accurately for a timely sale.
Homes that are in a neighborhood where all of the houses are very similar will benefit most from this method. An example of this would be a garden home subdivision that have homes with a narrow range of square footage and that are built on a slab or crawlspace. The price per square foot from recent sales can then be applied to the square footage of your home and this will give a pretty reliable estimate of value.
An example of where this method may provide a misleading indication of value would be where the homes vary widely in gross living area and are diverse in style and amenities. Some neighborhoods have both basement and slab homes with some of the basement homes having finished and unfinished areas. The price per square foot of these homes can vary by a large amount which can give you a wide range of value when applying it to the square footage of your home.
3) Listing your home at a price not based on market data- Overpricing your home, even in a seller’s market, is a bad idea because it may not appraise. Imagine going through all of the steps in selling your home, which is a lengthy process, and then getting hung up at the end when the appraisal comes in lower than the contract.
Sellers should allow the agent to provide an accurate list price for their home by either doing a CMA or even getting a pre-listing appraisal. An agent that is familiar with the area will price the home based on recent sales, however, if the seller ignores this advice and insists on a list price based on their own jaded perspective your sale could be doomed.
If the owner does not think the agent’s list price is accurate they may want to consider a pre-listing appraisal. This appraisal will also consider recent sales and listings like the CMA, however, it will provide a more in-depth analysis and be very similar to the mortgage appraisal that will be done when a potential buyer makes an offer on the house. The pre-listing appraisal will definitely help reduce the chances of there being a disparity between the contract and appraisal value.
4) Not providing complete information on the updates and renovations your home has had- This seems like a
no-brainer, however, it is important to let buyers know exactly what renovations the home has had. I have seen a trend in today’s market where buyers expect a home to be like new or move in ready to even be considered.
If you have taken the time, effort, and money to update your home let everyone know so that you are in the best position to compete with other homes on the market.
Conclusion
Appraisal mistakes can be avoided or reduced if you consider the items I have noted above before listing your home for sale. By going into the home selling process aware of common appraisal mistakes, you can hopefully avoid them and come out on the other side with a positive experience.
Do you have anything else to add? Do you have a question about something I didn’t cover? Leave a comment below and as always, thanks for reading.
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These are all great pieces of advice. I think in this market there are a lot of people who want to sell by owner since the market is strong and they are opting to save on paying commissions. I always recommend getting an experienced appraiser as well as a home inspector to let them know which repairs will likely need to be done. Between the two services, you should have a very good idea of what you home is currently worth and what it would be worth making any necessary repairs.
Normally I would say that it may be safe to sell your house as an FSBO, however, in today’s market, I don’t think that would be wise. The negotiation skills of a real estate agent are in high demand in today’s market especially with many homes selling far above list price and there being so much competition.
Your post reminded me I saw a sketch in MLS from an appraisal in 2003. Hopefully that appraiser way back then measured it correctly. I find some appraisers measure more accurately than others. I’d like to think through the years appraisers have gotten better too. I know I used to use a measuring wheel to measure because that’s what my mentor taught me to use, but I would never use that now. It’s just not accurate in my opinion.
Very true, Ryan. I never used a measuring wheel but agree that it is probably not as accurate as a tape or laser. Knowing what areas to include in your gross living area is critical since many of the sales stats that MLS’s provide are based on this.
Excellent advice Tom. All sellers should heed your advice.
I would add that when choosing an appraiser don’t look for the cheapest appraiser… look for the most experienced in your area and be willing to pay slightly more for a more thorough analysis of the market.
Also, and many Realtors would argue with me on this one, get a pre-listing home inspection and make the repairs that the inspector calls out prior to listing. The buyer’s inspector is going to find defects ultimately so why not take care of those items beforehand. It will leave less room for renegotiation after the contract and likely result in a higher price.
Great advice, Tom. I think a pre-listing home inspection is a good idea as well. Minor repairs will become major ones in the eyes of the buyer and they will try to negotiate down so why not fix this up front and save yourself the headache.