Common Appraisal Questions Agents Should Be Able to Answer
As a new real estate agent, you probably already know the importance of appraisals in your sales transactions. Whether you’re representing a buyer or a seller, appraisals can play an important part in the deal’s success—or its failure. In the previous posts, we covered the basics of the appraisal process and discussed what appraisers look for when determining value. Now, in the final installment of this series, I’m going to focus on common questions buyers and sellers may have about appraisals and how you, as an agent, can confidently address these concerns to build your reputation as a knowledgeable and competent professional.
1. Common Appraisal Questions Buyers Have
Why Does the Appraisal Matter to Me as a Buyer?
As a buyer, it’s important to understand that the appraisal is not just another formality—it ensures that you’re not overpaying for a property. If the appraisal comes in lower than your offer, you might face challenges with financing. Most lenders won’t approve a loan for more than the appraised value, and this can either delay or end the sale entirely.
How to explain it to your clients: Let your buyers know that the appraisal is there to protect their investment and that a lower appraisal could lead to renegotiations. This transparency helps ease anxiety and sets realistic expectations early in the process.
What Happens If the Appraisal Comes In Lower Than the Offer?
This is one of the most common concerns buyers have, which is expected. If the appraisal is lower than the contract, there are a few options to consider:
- Renegotiate the Price: Buyers can attempt to negotiate with the seller to lower the price to match the appraisal.
- Increase the Down Payment: If the buyer wants to proceed with the original offer, they could consider coming up with the difference between the offer price and the appraised value.
- Walk Away: If the appraisal gap is too large and no agreement is reached, the buyer might decide to walk away from the deal.
How to explain it to your clients: Let buyers know that this is a common situation and that you’re there to guide them through the different options. This can help reduce their stress and show your ability to handle challenges.
Can I Request a Second Appraisal?
Buyers might ask if they can request a second appraisal if they’re unhappy with the first one. The answer is that while reconsideration of value (ROV) is an option, it may not be as simple as just ordering another appraisal. The buyer (or agent) must present clear evidence that the first appraisal was incorrect or missed key comparables, and they must follow the lender’s ROV guidelines.
How to explain it to your clients: If your buyer is concerned about the appraisal, let them know that you can help them with the reconsideration process. I even have a simple form that agents can use for reconsideration requests—just contact me, and I’ll be happy to send it over.
2. Common Appraisal Questions Sellers Have
How Do I Know if My Home Will Appraise at the Price I’ve Listed It For?
Sellers often wonder if the price they’ve set for their home is realistic. The appraisal value is not entirely in the seller’s control—it depends on the buyer’s offer, the condition of the home, and how it compares to similar properties (comps) in the area. However, sellers can take steps to ensure their home is priced competitively and that the chances of the appraisal and contract lining up are increased.
How to explain it to your clients: As an agent, you should educate your sellers on how the appraisal is tied to recent comps and market conditions. Offer helpful advice on setting the right price and how overpricing a home can lead to a low appraisal.
Should I Make Upgrades or Repairs Before the Appraisal?
A common misconception is that sellers should make extensive upgrades right before the appraisal to ensure a higher value. While some updates-like upgrading the kitchen or adding more living area-can have a positive impact, cosmetic changes like fresh paint or minor landscaping additions often don’t contribute significantly to the appraisal value.
How to explain it to your clients: Encourage sellers to focus on necessary repairs that could impact the property’s structural integrity, like fixing plumbing issues or addressing foundation problems. Cosmetic updates should be viewed as enhancements, not value-boosters.
What If the Appraisal Comes In Lower Than My Asking Price?
This can be a tough situation for sellers, especially if they feel their home is worth more than the appraised value. If the appraisal comes in lower than expected, sellers may have to reconsider their price or offer concessions to the buyer.
How to explain it to your clients: Remind your sellers that appraisals are market-driven and often reflect local conditions. It’s important to approach a low appraisal with an open mind and a willingness to negotiate. As their agent, you can guide them on whether it makes sense to lower the price or provide a counteroffer to the buyer.
3. How Agents Can Address Appraisal Concerns Effectively
Now that we’ve answered some of the most common questions from buyers and sellers, let’s focus on how agents can work effectively with appraisers and guide their clients through the appraisal process:
- Clear Communication: It’s important to maintain clear, respectful communication with appraisers. Be sure to provide them with accurate and up-to-date property details, including any recent improvements, square footage, and unique features. This will help avoid discrepancies between the MLS listing and what the appraiser sees during the inspection.
- Manage Expectations: Setting realistic expectations with your clients is key. Whether you’re working with a buyer or seller, explain how appraisers determine property values, and let them know that a low appraisal doesn’t necessarily reflect the home’s worth to them personally—it’s just an independent assessment based on market data.
- Problem-Solving Skills: Low appraisals can create stress, but as an agent, you are the problem-solver. Whether it’s renegotiating the price, requesting a reconsideration of value, or helping the seller make adjustments, your ability to navigate these challenges will establish you as a trusted advisor.
- Stay Informed About Market Trends: A deep understanding of local market trends will allow you to provide better advice to your clients. If you know that certain neighborhoods or property types are underperforming in terms of appraisals, you can help manage expectations and suggest strategies that will result in a smoother transaction.
Appraiser/Appraisal Jargon: Key Terms Every Agent Should Know
Understanding the specific language of appraisals will help you as an agent communicate more effectively with appraisers and clients. Here are a few important appraisal terms that you’ll likely encounter during the appraisal process:
1. Market Value
This is the most common term you’ll come across. Market value refers to the estimated price at which a property would sell in the open market under normal conditions. It’s based on factors like comparable sales (comps), property condition, and market trends.
2. Comparable Sales (Comps)
Comps are properties that are similar to the subject property in terms of size, condition, location, and features. Appraisers rely heavily on comps to determine a property’s market value. When you hear an appraiser talk about comps, they’re referring to properties that have recently sold and are being used as a basis for comparison.
3. Adjustment
An adjustment is made when comparing the subject property to a comp. If one property has a feature that the other doesn’t (e.g., a pool or extra bedroom), the appraiser adjusts the comp’s value to make the comparison more accurate. For example, if the subject property has a larger lot, the appraiser may adjust the comp’s price upward to reflect its smaller lot in comparison to the subject and the market’s reaction to it.
4. As-Is vs. Subject-To Appraisal
As-Is: The appraiser evaluates the property in its current condition, without any changes or repairs being made. This is the most common form of appraisal, especially when a buyer is purchasing the property.
Subject-To: This type of appraisal is used when updates or renovations need to be made before the property’s value can be accurately estimated. If the seller has agreed to make renovations, the appraiser will base their value on the subject-to condition after those repairs are completed.
5. Cost Approach
The Cost Approach is one of the three approaches to value. It determines the property’s value based on the cost to rebuild it, minus depreciation, plus land value. This method is used less for older homes due to the difficulty with accurately estimating depreciation. It is more accurate with newer homes.
6. Income Approach
This method is most often used for income-producing properties, such as multi-family units or commercial real estate. The Income Approach values the property based on the potential income it can generate, considering factors like rental income and operating expenses. This is not usually used in single-family home appraisals unless they are being used as investment properties.
7. Reconciliation
In appraisals, reconciliation is the process by which the appraiser combines the data from different valuation methods (Sales Comparison, Cost, and Income) to come up with the final appraised value. This process allows appraisers to place more weight on the approach that best reflects the market value of the subject property.
8. Contributory Value
This refers to the additional value that specific features (like a newly renovated kitchen or a finished basement) bring to the overall property. For example, adding a new bathroom can add value to a property, though the amount will depend on market trends and comparables.
9. Bracketing
Bracketing consists of using sales that are both inferior and superior to the subject to come up with a more accurate value. For example, if you have a 2,000 sf home you would bracket it by using homes that are both smaller and larger in square footage to get a more accurate value. I cover this more thoroughly in a past post I wrote.
10. USPAP (Uniform Standards of Professional Appraisal Practice)
USPAP is a set of guidelines that appraisers must follow when conducting their work. These standards ensure that appraisals are ethical, transparent, and based on consistent methods. USPAP helps maintain the integrity of the appraisal process and ensures that appraisers remain impartial and unbiased.
Why Knowing These Terms Matters for Agents
As an agent, understanding these terms will help you communicate clearly with appraisers and clients alike. It will also help you answer your clients’ questions more confidently, whether they’re wondering about the value of their home, the appraisal method used, or why certain adjustments were made.
Being able to use the correct appraisal terminology in discussions can elevate your credibility with both clients and colleagues, positioning you as a knowledgeable real estate professional who understands the appraisal process inside and out.
Conclusion: Your Role as a Knowledgeable Real Estate Agent
As a real estate agent, you have the opportunity to play a crucial role in the appraisal process. By understanding how appraisers determine property values, anticipating questions your clients may have, and guiding them through challenges like low appraisals, you can establish yourself as a knowledgeable, competent professional who provides real value.
Remember, the appraisal process doesn’t have to be a mystery. With clear communication, the right knowledge, and a proactive approach, you can help your clients navigate appraisals with confidence.
If you’re ever dealing with a low appraisal and think reconsideration of value might be the right route, feel free to reach out to me for a simple form to help you get started. I’m always here to support you in helping your clients close deals with ease.
This concludes our appraisal series! I hope this series has helped you understand the ins and outs of the appraisal process. Stay tuned for future blog posts to help you grow as a real estate professional. As always, thanks for reading.
Thorough stuff, Tom. It reminds me of a conversation I had with a reporter recently. He asked me to unpack how a buyer might be involved in the appraisal process. I was like, “Well, buyers are pretty hands off.” That doesn’t mean the appraisal isn’t useful or important for the buyer, but the buyer doesn’t order the appraisal (and might not even read it unless the value comes in different than expected).
I think buyers these days are more conscious of value and comparables, since most sales information is online. I can see where a buyer may be aware of a sale that possibly was not used in the appraisal report. This could be submitted to the lender in a reconsideration of value. However, when they do this they need to think about the fact that the appraiser may have considered the sale but did not include it because the other sales were better.