Last weeks newspaper had a great article about appraisals.....who does them, who pays for them, why they're important and what happens if the house "doesn't" appraise at selling price. And, like Ryan Lundquist mentioned in his article, there are a lot of "it depends" associated with the answers. Sometimes I get calls from clients who ask me whether it's worth investing in a brand new kitchen or brand new bathrooms if they're planning on selling in the near future. I always say, "it depends"....and really, it depends upon a lot of different factors. For instance, are you going to invest $90k in a fabulous chef's kitchen.....or are you going to just replace the countertops and cupboard faces? Are you going to install hardwood flooring in the kitchen, or just new vinyl? Same with bathrooms, are you totally gutting the bathrooms and replacing everything, or just doing new tile or granite and maybe a new vanity?
My answer most of the time involves asking those clients if/when they plan to sell and whether they're going to invest a lot of money or just enough to "spruce it up". Like Ryan's article, IF you're in a higher end location and neighborhood, it might be worth every dime to gut your old kitchen and do a high-end remodel. If you're in a more modest neighborhood, you should perhaps consider just doing a basic upgrade. Investing thousands and thousands of dollar in a remodel, for a home that's located in a neighborhood of $150-$250,000 homes, will not guarantee that your home's value will increase by the amount of money you use to remodel it. If though, you take that same home and maybe replace countertops, replace appliances and a fresh coat of paint.... voila! you may have insured that your home might be the first home to sell once it goes on the market. Even "little" improvements make a big difference.
Now, getting back to "value" and appraisals when a property is sold, the appraiser looks at exactly the same "comps" that your Realtor uses when listing the property. If a Realtor thinks the house is worth say $400,000 based on other "comparable" properties and has sales to substantiate that price, then usually you're home free and all goes well with the appraisal. If, though, the seller says "yes, but MY house has a bigger kitchen, or nicer carpeting, or a newer roof....then I want $25k more than what those comps say"...... you "could" be challenged when trying to get it to appraise at the selling price. Granted, appraisers DO give value to items like new roofs, newer cent h/a, larger garages and maybe outdoor kitchens, but you really have to be able to substantiate that value in order to get the buyers' (lender) appraiser to take those items into consideration in value.
Major challenges come into play when there are multiple offers on a property and buyers and/or their agents say "let's just offer higher, impress the seller with offering more $$$$ and get it accepted! In reality, they know they'll be re-negotiating if that appraisal comes in lower.....at the actual "value" of the property and not the inflated, multiple offer price. This puts everyone in a very awkward and difficult position when that happens. And trust me, it happens ALL the time when there are loans involved in the purchase and there are multiple offers. Realtors try their best to prepare seller's in advance for what may happen with the appraisal. Sometimes seller's roll the dice and accept the highest offer, regardless of what may happen with the appraisal. Others are realistic and exam, with their Realtors, what all the terms and conditions of the offers are....including how much cash a buyer is putting down, what their earnest money deposit is, and how willing a buyer might be IF there's a discrepancy between the accepted price and the appraisal.
So, when you're listing your house for sale, do yourself a favor and ask your Realtor to explain how the appraisal process works and examine some of the "what if's". It's prudent to be well informed on the whole process so there are no surprises once you get into escrow. In my 37 years of selling real estate, I've always been of the persuasion that when seller's are educated and well informed of the process, everything goes very smoothly. Unexpected surprises are not a good thing.
Call or email me if you have any questions! I'd love to help you however I can.
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