Why Appraisals Matter
You’re under contract. The buyer you’ve agreed with is getting financing, and they are requesting an appraisal. No big deal, but what is that?
What is an appraisal?
An appraisal is the most accurate way to determine a home’s value. A licensed appraiser reviews the area’s sales activity, combs through the home features, and make their best determination of value based on neighborhood and market conditions.
Unlike automated valuation tools, the appraiser does a plethora of manual research and notes every item that may impact a home’s value. They will also look at nearby amenities, net sales prices, take photos, and search for safety violations. From this, the appraiser will prepare a Uniform Residential Appraisal Report that outlines their findings and value recommendation.
Appraisal vs. Comparative Market Analysis (CMA)
Some may think, ‘My Realtor gave me a CMA already. Can’t we use that instead?’
The short answer is no. While CMAs are also a value estimate from a licensed professional, they are intended to set a marketable price for the home. CMAs determine the price you should advertise your home to attract buyers, not it’s final value.
Why do appraisals matter?
Appraisals are formally recognized. They signal to all parties what the value of the home is. Buyers with an appraisal have an accurate assessment of their home’s value, which is adequately supported and standardized for the market. Mortgage lenders need to know this information for a smart lending decision. If the appraisal doesn’t come in where they expect, they may change or revoke their loan to the buyer.
Who pays for the appraisal?
While sellers can order an appraisal on their own, it rarely if ever happens during a sales transaction. The buyer almost always covers the cost during the transaction. The cost is normally a few hundred dollars, but it can vary based on the provider and the type of property. In the case of a sale, the appraisal can be paid for up-front or at the closing table.
Are all appraisals the same?
It’s an obvious question (with the answer being no). Our local market’s density makes it imperative to secure an appraiser familiar with the area. In many jurisdictions, it is acceptable to include comparable homes within a mile of the property. In DC, that puts you in a completely different neighborhood or out of the city. A Petworth home would vary sharply in price from the neighborhood if the appraiser from Virginia draws a mile radius and bases the value on homes in Brookland, Kalorama, and Dupont Circle.
When selecting an appraiser, find one familiar with your local area. It could save your sale.