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Do you have to get a home value appraisal?

Most likely you will need to get an appraisal at some point during the home sale process. See more real estate pictures.
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If you don't want to know what your home is worth in an economically challenged housing market, you won't like the answer to the question: "Do I have to get a home value appraisal?" Selling a house in a buyers' market -- or in a time of recession -- leaves many with no option but to sell for a price below what they owe on their mortgage, or home loan. According to one of the top real estate destinations on the Internet, Zillow.com, home prices in 76 percent of areas they researched were falling, and more than 23 percent of homeowners had mortgage balances higher than the value of their properties [source: Ellis].

These numbers aren't the most inspiring for those looking to sell their homes, but uncontrollable market forces are only part of the home selling picture. Even if making a profit or getting much out of the equity you put in is questionable, getting the most out of a home sale requires a really good faith effort on the part of the seller. You have some control over your home appraisal, and it begins with knowing what you're up against and who will be tallying the figures toward setting a home price.

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Selling a home means that, yes, you do need to get a home value appraisal, and it will likely cost anywhere from $180 to $450 or more [source: Harney]. But the good news is there are options for how you can go about getting an appraisal, including the following:

  • Find an appraiser to help you determine the fair market value of your home.
  • Research and set a price through your own research.
  • Set a price and wait for an interested buyer to arrange a home appraisal through a lender or bank.
  • Wait for someone to knock on the door and offer you lots of cash because they love what they see.

Getting an appraisal of your own, as the seller, setting a price and awaiting confirmation of the price from a potential buyer -- and the buyer's bank -- is most often the way to go. But what happens if you don't agree with the appraisal or the buyer's bank doesn't agree with your price? Let's look at some options for increasing your home's value or working with what isn't working in your favor.

It's no secret that the huge number of overvalued properties at the end of the 2000s led to out-of-whack housing prices. Values are coming painfully back into alignment with market realities, but this process is proving to be a long one, requiring patience and creativity from those who need to sell without waiting.

A December 2010 overhaul of practices and oversight provides updates to the home appraisal process that looks to protect home buyers and sellers. With involvement from organizations like the Federal Reserve and Federal Deposit Insurance Corporation, the "Interagency Appraisal and Evaluation Guidelines" frame ongoing steps and responsibilities for ensuring that the practice of real estate appraisal and loan awarding is detailed and transparent [source: Federal Reserve]. These guidelines continue to endorse the longstanding Uniform Standards of Professional Appraisal Practice (USPAP) and educational requirements of the Appraisal Standards Board (ASB), and they publish a summary of what an appraisal should generally include as a minimum. Looking into the USPAP, ASB and having some familiarity with the new guidelines is a good idea when the home appraisal process gets underway.

Appraisers use comparative studies of homes that have sold in the vicinity of your own to determine what the market looks like. This Comparative Market Analysis (CMA) ideally has a sampling of properties very similar to your own. Unfortunately, this value is not so easy to adjust upward or downward because it comes from actual sales numbers. However, some argue that high rates of short-selling or foreclosures reflect poorly on "fair" market value, and sellers are being encouraged to keep an eye on the "comps," or like homes, for those they know have sold at low prices due to the financial needs of the sellers [source: Hoak]. It is becoming more common to ask for another look from the appraiser, and maybe even a second opinion.

If you're close to getting an appraisal for the price you had in mind, any number of improvements can raise you up after the comps come in. While it may not be worth it to start extensive rehabs or upgrades before seeing how much value is already lost through market forces, often a few hundred to a few thousand dollars worth of improvements can bring a value in line with a price a bank will agree to on behalf of a buyer.

Home inspections and appraisals are different, but equally important, steps in a real estate transaction.
Home inspections and appraisals are different, but equally important, steps in a real estate transaction.
Jupiterimages/Thinkstock

While it is advisable to consider all home appraisal improvement recommendations, this should be after meeting the minimum upgrades, or the required fixes of a home inspection. An inspection is another review of your property that needs to come before a bank will approve a loan, and a qualified and certified home inspector is different from a trained appraiser. Reconciling the findings of the two is sometimes a value-added "fix" of its own. For example, an inspector can require replacement or repair of a gas furnace that is not sufficiently -- or safely -- heating a home, and installing a new unit with a warranty will likely be a big plus on the home appraisal as well.

Some confuse the appraisal and the inspection, which shows that the process isn't always explained to the seller well enough. It might help to see the inspection as a definite two-step process, because the inspector does come back to make sure that the noted corrections of his first visit get fixed. An appraiser, on the other hand, completes a report and gives it to the bank to make a decision about the home price. Contact with the seller (or seller's agent) and the appraiser is typically finished at that point, unless the seller's price and the appraiser's assessment are very different. Then an appraiser might offer steps to bring the property, and the report, closer to the desired selling price before sending the final appraisal to the bank and potential buyers.

Before tackling all of the projects recommended for improving your home appraisal, keep an eye on the market and know what will bring a return. If you're looking at a loss from the onset, just maintaining a clean and working home likely will be enough without a big output of work and money. And if it's any consolation, even in the best markets, people spend a lot of money steam-cleaning carpets, only to hear of potential buyers who want the wood floors underneath, and end up reducing the selling price to account for carpet removal. Just finished the basement? An eager buyer wants a workshop space with a drain in the concrete floors. The grass may be greener on the other side of the street, but chances are there is a buyer out there that will look at your house and consider it the one.

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Sources

  • Bureau of Labor Statistics, U.S. Department of Labor. Occupational Outlook Handbook, 2010-2011 Edition, Appraisers and Assessors of Real Estate. 2010. (Dec. 1, 2010)http://www.bls.gov/oco/ocos300.htm
  • Cornett, Brandon. "Home Value Killers of 2011: Inventory and Unemployment." Home Buying Institute. Dec. 1, 2010. (Dec. 6, 2010)
  • http://www.homebuyinginstitute.com/news/home-value-killers-104/
  • Ellis, Blake. "Home Values Tumble $1.7 Trillion in 2010." CNNMoney.com. Dec. 9, 2010. (Dec. 9, 2010)http://money.cnn.com/2010/12/09/real_estate/home_value/index.htm
  • Federal Reserve System, et al. "Interagency Appraisal and Evaluation Guidelines." Federal Register.gov. Dec. 10, 2010. (Dec. 12, 2010)http://www.federalregister.gov/articles/2010/12/10/2010-30913/interagency-appraisal-and-evaluation-guidelines
  • Freddie Mac. "Home Values Decline in Third Quarter." FreddieMac.com. Nov. 30, 2010. (Dec. 3, 2010)http://www.freddiemac.com/news/archives/rates/2010/3qhpi10.html
  • Harney, Kenneth. "Federal Reserve's Proposed Home Appraisal Rules May Not Prevent Inaccurate Valuations." Los Angeles Times online. Oct. 31, 2010. (Dec. 10, 2010)http://articles.latimes.com/2010/oct/31/business/la-fi-harney-20101031
  • Hoak, Amy. "How to Fight Back Against a Low Home Appraisal." Wall Street Journal: MarketWatch.com. May 19, 2010. (Dec. 12, 2010)http://www.marketwatch.com/story/how-to-fight-back-against-a-low-home-appraisal-2010-05-10
  • Home Buying Institute. "How to Prepare for a Home Appraisal." HomeBuyingInstitute.com. 2010. (Dec. 2, 2010)http://www.homebuyinginstitute.com/sellingtips/2009/03/how-to-pepare-for-home-appraisal.html
  • Lewis, Marilyn. "Putting Home Value Tools to the Test." MSNMoneyCentral.com. 2010. (Dec. 10, 2010)http://moneycentral.msn.com/content/banking/homefinancing/p150627.asp
  • Matthews, Steve. "Fed Requires Banks to Select Appraisers Based on Performance." Bloomberg.com. Dec. 2, 2010. (Dec. 6, 2010)http://www.bloomberg.com/news/2010-12-02/fed-requires-banks-to-select-appraisers-based-on-performance.html
  • Max, Sarah. "Appraisal Fraud: Your Home at Risk." CNN Money.com. June 2, 2005. (Dec. 6, 2010)http://money.cnn.com/2005/05/23/real_estate/financing/appraisalfraud/index.htm
  • Redfin.com. "Comparative Market Analysis." 2010. (Dec. 8, 2010)http://www.redfin.com/buy-a-home/comparative-market-analysis
  • Zillow.com. "Your Home Appraisal, What's the Big Deal?" Zillow.com. Dec. 2, 2008. (Dec. 8, 2010)http://www.zillow.com/wikipages/Your-Home-Appraisal-Whats-the-Big-Deal/

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