How can a prelisting appraisal save agents time and money?
It’s a well known fact that time is money, and this could not be truer when you consider everything a real estate agent must do when listing
a home for sale. In case you haven’t considered it before, a pre-listing appraisal can play an important role in saving an agent time and money. Let’s take a look at how a prelisting appraisal can be used to your benefit.
Killing three birds with one prelisting appraisal
A full residential appraisal can provide valuable information that a real estate agent can use to aid them in listing a home. Instead of doing these tasks yourself you can take advantage of the appraiser doing them when they perform the prelisting appraisal.
The appraisal provides three items of important information needed when listing a home so lets look at how you can leverage the appraisal in your favor.
Market Value- This is the most obvious and common use of a prelisting appraisal. The report provides the market value of the home so why not take advantage of the appraiser’s market knowledge and experience? The appraiser will come up with an opinion of value based on criteria and guidelines that are typically required in a mortgage lending appraisal. This is good because it will more closely approximate the appraisal that will be performed after the home goes under contract.
The value provided in the prelisting appraisal should not be to different from the mortgage appraisal when the home sells and will only vary if there are more recent sales. Some common problems I have seen when agents come up with comparables is that they use sales that are too old or they use sales that are not even comparable because they differ in physical characteristics or may not even be in similar a location. How much time do you spend on your market analysis? Multiply this time by your hourly rate and you may be surprised.
Could this time be better spent on marketing strategy or another area that you are more of an expert in?
MLS listing photographs- I think this is something agents and even appraisers have really never considered. Most appraisers use good quality point and shoot cameras that is probably similar to what you might use if you do it yourself. If you typically hire a professional photographer this may not interest you but keep it in mind if you want to save money.
This option will be a good fit for you if you would have taken the pictures yourself or had an assistant do it for you. An appraiser usually takes pictures of every room and positive feature in the home and would probably not mind providing these to you for use in the MLS listing.
Floor plan sketch- The Birmingham MLS made it a requirement this year to include accurate square footage in their listings. It is possible for agents to do the measuring themselves, however I have found that most would rather let someone with more experience do this, such as an appraiser.
A prelisting appraisal report includes a floor plan sketch and the gross living area of the home. The sketch can be included in the MLS listing so potential buyers can see the layout and room location. This is one area I am very passionate about because this one piece of data can lead to many other areas of helpful information. Knowing accurate square footage can give you the price per square foot of the comparables to help you in future pricing.
So if you add up the time you would spend on pricing, taking pictures, and tracking down the accurate square footage of a listing you might find that a prelisting appraisal is a very good bargain because of the valuable information it provides compared to the time and money you might spend. In addition, if the home is priced more closely to the market it will probably sell faster thereby decreasing marketing costs.
I hope this post helps you look at the prelisting appraisal from a different angle, one which can help you be a more profitable and productive real estate agent. If you have any questions about how a prelisting appraisal can benefit you leave me a message and we can talk about it.
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Although I am a senior citizen, I have just learned many aspects of home ownership in the last seven years which have been a real shock. I live in Arizona and neither appraisals nor inspections are required to buy a home. I never knew that the guy’s home down the block might be compared to mine one day; how dumb. I never knew that unless a seller prices their home at a ‘same size fits all’ in their neighborhood, it won’t sell and if there are interested people, they all become the critic about your ‘over-priced’ home. I never knew that a person struggles, especially through the Great Recession, to pay on time and maintain and upkeep their home only to be compared to the foreclosures and short sales of deadbeats, along with those who never maintain their homes. Although you state that agents perform many duties in listing a house, I have had several agents do very little for a 3% commission of the sale price. They have it so easy now (internet) compared to the latter years when they really had to work hard to put the word out. I am disgruntled to know that agents charged 6% a long time ago for homes that were priced really low in the earlier years and when home prices were hiked up so far nobody could realistically afford them, the agents kept their commissions at the 6%. I am not only a very realistic person who has always worked hard for my money and what I own and frankly, when the agents get 6% on a sale, that is what most call greed. I feel the entire real estate business is skewed and needs an overhaul. When a person sells their home, why does everyone have an opinion about what it’s worth? A person should sell their home for whatever price they want and it should not be judged by homes in the same area. Every home is different. There should be a new system which evaluates a home by the bank, if there is a loan. This evaluation should be based on the location of the home and the economic pluses of why the land is valuable and why a person would want to live there. This factor would in turn stir the economic growth. This, coupled with the facts about the home’s integrity and maintenance should be how the home is judged for price. As for banks loaning people money in the first place, that too makes no sense. If the banks stopped loaning money, builders would quit overpricing their homes and people could realistically save up for their home. The banks wouldn’t be volatile and could offer higher interest on savings, like they did in earlier years. Just because everyone is used to the same processes is actually limiting all of us in attaining something of value, which is actual home ownership. These are only some of the factors I believe are appreciated by most of the people I speak with. Thinking outside of the box enables all of us to be better at getting where we want to go.
Deidre you make some valid point that I cannot argue with. One thing I do want to point out is that most people today cannot buy houses outright for cash, and because of that they must finance it with a bank. The bank requires an appraisal to make sure their collateral for the loan is worth what they are lending because if it is not, and the home is foreclosed on, then they will not be able to get their money back. It is because of this that appraisals are performed, to make sure the value of the home is the same as what they are buying it for. If all homes were bought with cash then an appraisal would not have to be done except if the buyer wanted it. Thanks for reading and I appreciate your comments.
Great points Tom. Unfortunately, most agents and brokers don’t want to invest in a pre-listing appraisal unless the seller’s pricing expectations are out of the ballpark and they need to bring the seller down to earth. At least that has been my experience.
The truth is that most agents do not understand the appraisal process. Typically, they look at a range of prices per square foot in the neighborhood and then price the property somewhere in that range. They do not know how to identify the individual components of value based upon market data, determine the value of those individual components, , and apply those individual components to the subject property to estimate the property value.
Professional appraisers are trained how to go through the process of identifying the elements of contribution and value them based upon market data. If agents only knew that an experienced professional appraiser is the best resource for valuing property, more would be ordering pre-listing appraisals.
You make some valid points Tom. Cost is definitely something to consider but when you look at what it costs and the resulting value (ie quicker sell time, not leaving money on the table, etc) it is a no brainer. I speak at different local real estate offices in my area and strive to educate the agent on the appraisal process in regards to exactly what appraisers do and why they do it. Agents are typically very interested in the process we go through and I let them know how they can do a better job in pricing their properties by following appraisal related guidelines more closely. What I mean by this is that they need to use the most recent sales that are the most similar to the subject. I let them know that if there are no sales in the immediate subdivision it is ok to go outside the neighborhood as long as the homes are similar, in similar school systems, similar price range, etc. If the buyer would go to the other neighborhood to buy if none were available in the subject neighborhood then that is a good indication the property is comparable. In my opinion educating agents on the appraisal process should be our main goal.
That can be a game changer for your local market to provide accurate square footage. Sounds like a great opportunity for agents to connect with appraisers. Even if they don’t want to do a full appraisal too, maybe they can hire for an appraiser for a sketch and some valuation consulting (a few graphs and a range of values for the neighborhood). Good stuff, Tom.
Thanks Ryan. It is definitely a great opportunity for appraisers and agents to get together. I don’t suggest that an agent need an appraisal for every listing but in the right situation they can be the right tool.
Good morning Tom, excellent job once again – thanks much for the extremely valuable insight! Not to sound overly too much like a groupie (lol) but I have recommended your blog to every appraiser in my company. What I’d like to add here further enforces the importance of your post – the idea of solidifying the relationship between LA & their client (i.e. seller/current owner). I won’t ramble on but how many times we have all experienced a disconnect between an owners’ opinion of value & its true market value but just imagine a LA with a well done independent appraisal in hand? No better way to avoid an argument & maintain that professional relationship than to have a 40 pg document in your corner. Trust me when I tell you that I have completed many ‘multiple hundred dollar’ assignments & saved many ‘multiple thousand dollar’ deals!
So true David. I always tell the agent that if they have done their homework and the homeowner still does not like the list price they come up with then get another opinion of value from a disinterested third party, the appraiser. This could possibly support their CMA and also make the homeowner feel more comfortable about the pricing strategy. Thanks for sharing.
Great blog post as usual Tom. We also do pre listing appraisals in my appraisal office. I would add that a pre listing appraisal also can be a great negotiating tool if an offer is received below the appraised value. However, more than that and all the reasons that you noted, an appraisal is a low cost second opinion. Pricing a house is a big decision and if it is priced too high or too low can cost you many thousands in time and the eventual sales price. On a typical $250,000 home sale, the real estate agent costs $12,500 in my market and an appraisal cost is only about $500. That is an excellent value on what is probably the biggest sale of your life. That is why when banks acquire a home thru foreclosure, they usually order two appraisals and still hire an agent. Appraisals are a great value. When relocation companies acquire a house, they usually order two appraisals and still hire an agent. Appraisals are a great value.
All very good points Gary, thanks for sharing. You hit the nail on the head about the appraisal being an excellent value when you consider what it costs compared to how much you could possibly make by pricing the home correctly or by paying the true market value for a home if it is less than what it is listed at.