Do I need a pre-listing appraisal even If I’m using a real estate agent?

pre-listing appraisals and real estate agents are not mutually exclusiveMy best answer for this question is “It depends”. Some people think that just because they are using a real estate agent that they don’t need an appraisal, but this is just not true in every situation. I thought we could take a look at times when it would make sense to get an appraisal even though you are using the services of a real estate agent.

Lack of Sales Data

Even though agents have experience in what it takes to sell a house they may not know exactly what to price it at, especially when the property is located in an area where there are not very many sales to go on. This typically occurs in rural locations or other areas where market activity is slow. If this is the situation you find yourself in then it might be worthwhile to get an appraisal. The appraiser will be able to do a more in depth search to find nearby sales, or if there are none then they can look at other areas they may be further away but still similar in many other factors that buyers find to be important. It’s one thing to have 5-10 sales to choose from when pricing a home in a suburban neighborhood with lots of sales activity but quite another when the property is in a more remote location with little sales activity to go on.

Too Much Sales Data

Even though my next example sounds crazy I have seen where it can cause confusion when pricing a home. Some neighborhoods have a lot of sales activity but the sales that have occurred may not be similar to the property being sold. Many times real estate agents will look at the most recent sales and come up with a price per square foot range and then apply a number from within this range to the subject to come up with a list price. If you have a wide variation in property types like slab homes, 1.5 story homes, and homes with finished basements then the price per square foot may not be a good indicator of value and it will not help you out much because you are not comparing apples to apples. Using this method can give you a wide range of value that may not be helpful in a competitive market where pricing is critical. Being able to sift through sales until you find true comparables is very important when estimating the value of a home.

Over Improved Properties

Pricing a home that has had numerous and costly improvements may present a challenge because, as I have mentioned in previous posts, cost does not always equal value. During the real estate recession that we have been through (and hopefully now recovering from) over the past several years homes have gone down in value in many areas while construction costs have either held steady or increased. This has resulted in a wider range between market value and construction costs. Many  homeowners would like to price their home for an amount that would help them recover their costs, however this may not be realistic. It is always important that a home be priced to the market if you want it to sell, if not then it will sit on the market longer than normal. The price will eventually need to be dropped to reflect what buyers are willing to pay, so it is a good idea to price it at that amount from the beginning. I have heard agents say that continually dropping a homes price does not look good in the eyes of potential buyers because it gives the impression that something is wrong with the house and this can hurt your chances to sell it.

Accurate and Relevant Report

Many of my recent posts have been focused on how real estate agents can determine the correct square footage for their listings. The very first step in arriving at a list price is to find out what the correct square footage is. A pre-listing appraisal will provide this information in addition to providing a side by side comparison of how it stacks up against similar homes. The appraisal will take into consideration what current underwriting guidelines are when choosing comparables and developing a value estimate to use when pricing the home. Ideally the sales will be the most recent to occur and if the home sells within a reasonable amount of time then the comps used for the pre-listing appraisal will likely be the same ones the appraiser uses for the mortgage, of course there may be some new ones that have occurred between the two dates. My whole point is that if the first appraisal uses similar guidelines that the second one uses, such as time of sale, adjustment percentages, and distance parameters then the final value estimate of the two should be similar.

When You Shouldn’t Get an Appraisal

As I mentioned at the beginning there are situations where I don’t think it is necessary to invest in an appraisal. If a home is located in a neighborhood that has good sales activity, including numerous recent sales and current listings, and there is a high level of conformity between homes, then it is much easier to estimate the value without an appraisal. Gross living area estimates for certain types of homes are more accurate in county records also. The county is going to be more accurate in their square footage estimates with a one story slab home compared to a 1.5 story home with finished and unfinished basement. The mass appraisal methods that the county uses is also more accurate with the one story slab home if it is in an area with other similar homes compared to a more diverse area that has a lot of different house styles with varying quality levels. In situations like this if you utilize the most recent sales and compare them to what is available for sale then your estimated list price will be based on the market and this will make it easier to sell and there will be less of a likelihood that the home will not appraise for the contract amount, thereby preventing problems and delays on the back end of the transaction.

Do What’s Right for Your Situation

Don’t let the fact that you are using a real estate agent prevent you from getting a pre-listing appraisal if the situation calls for one. The cost of the appraisal will be well worth the time saved in selling your home at the right price. I would like to hear your thoughts or if you have a question leave me a comment below.

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