In a sellers market, it’s not uncommon for homes to sell above their listing price or even their appraised value. But how much is your house actually worth? Pricing your home correctly is challenging, but there are tools you can use, including hiring an appraiser to complete a pre-appraisal.
A pre-appraisal can be a great jumping off point to identifying the right asking price.
Whether you should price your home above its appraisal depends on the accuracy of the appraisal, local market demand, neighborhood appeal and the likelihood you’ll get a cash buyer.
If you sell to a buyer with financing, their lender will order another appraisal before closing to protect themselves from lending more than the house is worth. In that case, it’s ideal to list right at the appraised value, or even a little under, so the deal goes smoothly. But if you have a cash buyer, they’re not beholden to a lender’s appraisal, so they can offer whatever amount they want. Get a no-obligation cash offer for your house here.
What is a pre-listing home appraisal?
A pre-listing home appraisal is when a professional, licensed local appraiser analyzes your home’s condition in person to determine its value. The appraiser also considers similar homes recently sold in your area. There’s always room for error, as appraisals combine both technical valuations and the appraiser’s professional opinion on what different features of your home are worth.
What an appraisal takes into consideration
Square footage
Number of bedrooms and bathrooms
Age of house
Age of mechanical systems
Condition, layout and finishes
Location and nearby amenities
Comparable recent sales (usually three)
What the appraisal doesn’t cover
Appraisers are looking at the technical and economic aspects of the home and may not account for the human aspect of real estate — buyers will ultimately pay what they think a home is worth, based on how badly they want to buy it. In a sellers market, many buyers are even willing to pay cash to make up the difference between the appraised value and the offer price.
While an appraisal gives you a good idea of your home’s value, there’s no way your appraiser can predict how your home will actually perform on the open market. Maybe you’ll get 10 offers, and the price will be driven up. Maybe it will stay on the market for weeks or months, and you’ll need to do a price reduction. These are things that no appraiser can account for. If you’re looking for a listing price estimate that weighs all local market factors, review a comparative market analysis (CMA) — more on that later.
Should I get an appraisal before listing?
A pre-appraisal isn’t required, but it can be a good idea if you’ve done a lot of home upgrades recently and you’re not sure how much value they’ve added. They’re also helpful if there aren’t good comparable listings in your area or you’re going to sell for sale by owner (FSBO).
If you’re selling in an extreme buyers or sellers market, your home could sell quite a bit above or below your appraised value, so ask your agent if they think doing a pre-appraisal makes sense for you.
Assessed value vs. appraised value vs. fair market value
When determining the best listing price for your home, you may hear three different terms tossed around: assessed value, appraised value and fair market value. It’s important to understand the differences among the three so you can be smart about deciding how to price your home.
Assessed value
The assessed value of a home comes from the local tax assessor’s office, usually on a yearly basis. It’s the figure they use to determine how much you owe in property taxes. Your home’s assessed value is typically much lower than an appraised value or a fair market value, so it should not be used to determine listing price.
Appraised value
The appraised value is the number your professional licensed appraiser gives you after evaluating your home and reviewing comparable sales. For example, let’s say your home is similar to one down the street that recently sold, but you’ve updated the kitchen. You’ll get “credit” for the updates in your kitchen, and that will be calculated into your appraised value.
Fair market value
Your home’s fair market value is the amount a buyer is actually willing to pay for your home. What a buyer decides to offer is based on a variety of factors, including local market and economic conditions, interest rates, demand, employment and their personal attachment to the home.
Many sellers base their listing price off of what they feel is the fair market value, because it’s the most comprehensive pricing strategy. Depending on the state of your market, sellers sometimes price their home a bit under fair market value in hopes of inciting a bidding war that drives the price up.
How do you find your fair market value? Your real estate agent should provide a CMA that weighs the positive and negative features of your home, as well as local market trends and demand.
What is the average cost of a house appraisal?
You can expect to spend roughly $400 - $600 for an appraisal, but the cost can be lower or higher based on where you live and the size of your home.
Alternatives to using a pre-appraisal
If your pre-listing budget is tight and you don’t have an agent to help you determine the fair market value of your home, consider using the online tools in lieu of a professional appraisal, but keep in mind that they are not always accurate.
Or you can get a no-obligation offer from a cash buyer like Easy Outs Homes so you can get a feel for what your home could sell for. And if you like the offer, you can sell directly to us and skip the hassle of listing altogether.
Tips for using an appraisal to set a listing price
When you’re ready to set your listing price, stay close to your home’s fair market value to avoid the buyer’s appraisal coming back too low.
Check the comps
Look at the comps shown in the appraisal report. Are these truly good comps? They should be recent (sold within the last three months, if possible), as close to the location of your home as possible, and similar to your home in terms of size, number of bedrooms and bathrooms, and lot size.
Find additional comps in case you find some that support a higher market value. If you have comps that support your desired listing price, you can (respectfully) pass them on to your buyer’s appraiser before they complete their analysis.
Don’t overprice
There’s no magic dollar value to add to your appraisal figure in order to find the perfect listing price. Appraisals vary — sometimes they’re too low, sometimes they’re too high and sometimes they’re just right. If you believe your appraisal came back too high, don’t be tempted to list your home for that inflated price.
Overpricing can lead to a price cut or a stale listing, both of which can be red flags for buyers. You may even get an offer from an eager buyer, but then the deal could fall apart when their lender does their appraisal and comes back with a lower number — more on that later.
Keep search parameters in mind
Buyers who search for homes online tend to search up to a certain price point — usually a round number — so keep that in mind when you price your home.
Let’s say your home appraises for $302,000. If you price the home at $299,000 instead of $302,000, your listing will get in front of buyers who set their maximum price filter at $300,000. If you list it for just $3,000 more, you may miss a big pool of potential buyers.
Will my house appraise for the selling price in the buyer’s appraisal?
Remember that even if you do a pre-listing appraisal, your buyer’s lender will probably require another appraisal to be completed as a condition of closing. If you have a cash buyer, they may waive their appraisal.
Assuming your buyer’s lender is doing an appraisal, you’ll need it to come back at or above your selling price in order for the deal to move forward. While there’s no guarantee your home will appraise at the selling price, low appraisals are a bigger risk in a sellers market. Why? When a bidding war or short supply of homes drives up offer prices, it’s more likely that the buyer’s appraisal won’t keep pace.
Problems when selling a house for more than the appraised value
Even if you priced your home based on the results of your own pre-appraisal, there’s no guarantee that the buyer’s appraisal number will match. If the buyer’s appraisal report is lower than the agreed-upon purchase price, the lender won’t approve the financing as-is.
According to the Zillow Group Consumer Housing Trends Report 2018, among sellers who sold in the past 12 months and had a deal fall through, 10% said it happened because the appraisal was lower than the purchase price.
Can a house sell for more than the appraisal?
If the sale price comes back higher than the buyer’s appraisal, the deal doesn’t immediately get canceled. Here are a few solutions for moving forward:
The buyer can make up the difference between the appraised amount the bank is willing to finance and the selling price.
The buyer can challenge the appraisal (this requires lender approval).
You can offer seller financing, if you’re financially able.
The buyer can pay cash for the entire purchase, if they have the money. Get a no- obligation cash offer for your house here.
