Myths About Appraisals

The appraisal is one of the scariest parts of the home-selling process—and one of the most confusing. After all, why is somebody valuing your home after you've already decided on a listing price and received an offer? Plus, you're never sure if the appraiser is truly factoring in those countless weekends you spent on all of those home upgrades—they have to count for something?

Not always.

Here are some common myths surrounding the home appraisal.

Myth 1

The appraiser works for the buyer

The buyer pays for the appraisal but the appraiser works for—and is hired by—the lender. It doesn't matter if you and the buyers have agreed on a price. The buyer's lender needs to be on board because it is the lender's investment, too.

But don't worry: Even though the appraisal is meant to protect the buyer's lender from a bad deal, appraisers are trained to be ethical and unbiased. It is a crime to force or put any pressure on an appraiser to hit a certain value.

Myth 2

An appraisal is the same thing as a home inspection

Although both the appraisal and the home inspection are used as safeguards for the buyer (and the buyer's lender), don't get the two confused. Home inspectors and appraisers have completely different jobs. They both look around your home, however, the inspector’s job is to uncover everything that is or could be problematic with the home. The appraiser's job is to find the market value of the property.

To do this, the appraiser will use comparisons (the same thing you used to determine your list price). Appraisers also take into consideration a home's condition, square footage, and location. Appraisers also note the quality and condition of the flooring, plumbing and electrical system. With this information in hand, they make their final assessment and give their report to the lender.

Myth 3

An appraisal will give you the magic number of what the buyer will pay

The appraisal process isn't an exact science. In fact, the appraisal is only one opinion of what your home is worth. It doesn't dictate how much the buyer should pay, or how much the seller should accept.

So what happens if the appraisal doesn't match the contract price?

If your home is appraised lower than the price you and the buyer agreed upon, the lender isn't going to give up more money to make up the difference. Instead, it will be up to you and the buyer to figure out who pays that difference. Can the buyer throw in more? Sure. Does the seller need to cover the difference just to make the deal go through? Maybe. Will the seller and buyer agree to a new purchase price to match the appraisal? Possibly. This is where the discussion and re-negotiation happen.

Myth 4

The bigger the house, the higher the appraisal

Consider a mansion built on an average-size lot in an otherwise modest neighborhood. Although the home might dominate its neighbors, that doesn't mean it will be appraised for that much more than neighboring homes. The value of the home is measured as if it were similar to others in the area that would commonly be expected on that same lot.

Myth 5

The more bells and whistles, the higher the appraisal

If you have overly improved your home with amenities that don't exist in nearby homes, there is no sales data the appraiser can use to decide just what those amenities are worth. And that goes for your décor, too. Appraisers make a straight value judgment on the quantifiable aspects of the house—that is, the square footage, number of rooms, and other measurable data.

Myth 6

All amenities are created equal

If you've equipped your home with an in-law suite or a home exercise space, but you converted your garage to do so, don't expect the home appraiser to give you added value. Your house has a garage for a reason and most people want to park their cars where they are safely protected from the elements and break-ins.

Be careful any time you remove one amenity to replace with another—it might come back to haunt you in the appraisal.

e appraisal is one of the scariest parts of the home-selling process—and one of the most confusing. After all, why is somebody valuing your home after you've already decided on a listing price and received an offer? Plus, you're never sure if the appraiser is truly factoring in those countless weekends you spent on all of those home upgrades—they have to count for something?

Not always.

Here are some common myths surrounding the home appraisal.

Myth 1

The appraiser works for the buyer

The buyer pays for the appraisal but the appraiser works for—and is hired by—the lender. It doesn't matter if you and the buyers have agreed on a price. The buyer's lender needs to be on board because it is the lender's investment, too.

But don't worry: Even though the appraisal is meant to protect the buyer's lender from a bad deal, appraisers are trained to be ethical and unbiased. It is a crime to force or put any pressure on an appraiser to hit a certain value.

Myth 2

An appraisal is the same thing as a home inspection

Although both the appraisal and the home inspection are used as safeguards for the buyer (and the buyer's lender), don't get the two confused. Home inspectors and appraisers have completely different jobs. They both look around your home, however, the inspector’s job is to uncover everything that is or could be problematic with the home. The appraiser's job is to find the market value of the property.

To do this, the appraiser will use comparisons (the same thing you used to determine your list price). Appraisers also take into consideration a home's condition, square footage, and location. Appraisers also note the quality and condition of the flooring, plumbing and electrical system. With this information in hand, they make their final assessment and give their report to the lender.

Myth 3

An appraisal will give you the magic number of what the buyer will pay

The appraisal process isn't an exact science. In fact, the appraisal is only one opinion of what your home is worth. It doesn't dictate how much the buyer should pay, or how much the seller should accept.

So what happens if the appraisal doesn't match the contract price?

If your home is appraised lower than the price you and the buyer agreed upon, the lender isn't going to give up more money to make up the difference. Instead, it will be up to you and the buyer to figure out who pays that difference. Can the buyer throw in more? Sure. Does the seller need to cover the difference just to make the deal go through? Maybe. Will the seller and buyer agree to a new purchase price to match the appraisal? Possibly. This is where the discussion and re-negotiation happen.

Myth 4

The bigger the house, the higher the appraisal

Consider a mansion built on an average-size lot in an otherwise modest neighborhood. Although the home might dominate its neighbors, that doesn't mean it will be appraised for that much more than neighboring homes. The value of the home is measured as if it were similar to others in the area that would commonly be expected on that same lot.

Myth 5

The more bells and whistles, the higher the appraisal

If you have overly improved your home with amenities that don't exist in nearby homes, there is no sales data the appraiser can use to decide just what those amenities are worth. And that goes for your décor, too. Appraisers make a straight value judgment on the quantifiable aspects of the house—that is, the square footage, number of rooms, and other measurable data.

Myth 6

All amenities are created equal

If you've equipped your home with an in-law suite or a home exercise space, but you converted your garage to do so, don't expect the home appraiser to give you added value. Your house has a garage for a reason and most people want to park their cars where they are safely protected from the elements and break-ins.

Be careful any time you remove one amenity to replace with another—it might come back to haunt you in the appraisal.

Source: Client Direct Newsletter by e-agents