Should You Get an Appraisal Before Selling Your House?

In this article, I am going to help you understand whether it’s a good idea to get a home appraisal before selling it.

I will guide you through why a home appraisal is so important, how appraisal works when selling a home, and how it can affect the outcome of your real estate transaction.

By the end of the guide, you will learn:

• The financial benefits of setting the right price
• The value of getting an appraisal before selling your home and why it is a critical tool when it comes to finding the best price
• The best time to order a home appraisal if you’re selling
• Who is responsible for the cost of the home appraisal

My name is Matthew Love, and I’ve been an FHA-approved real estate appraiser for the state of Ohio since 2021. I have about 14 years of experience in the valuation industry.

My experience mostly came from doing small commercial and residential appraisals as a licensed ARA.

So, if you’re ready, let’s get to it!

Technically speaking, a home appraisal is not a requirement to sell a home.

In October of 2019, the Office of the Comptroller of the Currency (OCC) adopted the rule to increase the appraisal threshold from $250,000 to $450,000.

In a joint press release, the Board of Governors of the Federal Reserve System released a statement on this ruling to exempt residential real estate transactions of $400,000 or less from appraisal requirements.

But does the ruling by the OCC eliminate the risk that comes with buying and selling homes? What are the risks?

Well, there is a risk of overvaluing a property. And overvaluing leads to losing potential buyers. On the flipside, you could leave money on the table by undervaluing an asset.

Moreover, if the buyer is working with a lending institution (which happens most of the time), it can delay or lose that deal altogether once they’ve had their own appraisal done.

There is also the risk of potential legal issues that could prevent financing for the home.

The bank needs to make informed decisions to ensure their investments are sound, and the appraisal is the tool they use for this.

If you are using a licensed real estate agent, normally you don’t need a pre-listing appraisal. The agent doesn’t need a formal appraisal to determine the price to list your house.

One of the benefits of using a realtor to sell your house is that they do their own comparative market analysis and adjust the price when marketing your property as needed, to sell it for the top dollar.

Now let’s look at the case where you aren’t using a real estate agent.

From my experience reviewing appraisal products on the backend of the loan process and running Prime Meridian Appraisal Company providing the appraisal service for all of the leading financial institutions of this region, I can tell you firsthand about the importance of home appraisals for anyone buying or selling a property without the assistance of a real estate professional.

The insights appraisals provide are critical:

• A quality appraisal will reveal any issues noticeable to a professional that affect the value of a property.
• It is useful information to have before listing your home.

If you plan on listing your home yourself, an appraisal can also be used to reinforce your claim that the renovations and upgrades, for example a kitchen remodel, increased the home value.

For sellers, a sound appraisal can be an essential tool to balance setting a fair and competitive price that attracts buyers, while ensuring the best possible return on their investment.

If you’re planning to sell your home by owner, getting a home appraisal before selling is definitely a smart move.

So when should you appraise your house before selling? The following are situations when you would want or need an appraisal before listing your property:

• You plan on selling the home FSBO (for sale by owner, without using a real estate agent)
• You are the testator of an estate and you want to know the value
• You are the beneficiary of an estate and the probate process requires a formal appraisal

Getting an appraisal when faced with any of these situations is a good idea, as it ensures a smooth and profitable transaction.

So now that we know that selling a home without an appraisal can lead to several pitfalls, why take chances with one of your most valuable assets?

In short, whoever orders an appraisal pays for it. But let’s talk about who pays for the appraisal when selling a home in different situations.

Say you are selling a house by owner, without a realtor. You ordered your own appraisal before listing the house. In this case, you pay for it.

Regardless of whether you are selling FSBO by listing it on for sale by owner websites or with a listing agent and regardless of whether or not you have an appraisal done before listing, the buyer will likely have to do their own as well. Here is why.

When a buyer applies for a mortgage, their lending institution will require a formal appraisal to make sure the asset used as collateral for the loan is worth it. The appraisal fee is included as part of the buyer’s closing costs.

If the buyer doesn’t use a lender, like in cases when selling your house to an investor, they may or may not order an appraisal. But if they do, they pay for it.

However, in some situations, depending on the negotiations, the seller may choose to cover the buyer’s appraisal costs to help facilitate the sale.

Okay, imagine you’re a chef who’s about to prepare a dish for a group of special guests. Would you just throw ingredients together and hope to get a great dish out of it?

Or, would you use your skills and experience to carefully measure each ingredient and ensure the perfect balance of flavors?

Selling a house is a lot like preparing a new dish. If you want to get the perfect price, you need the skills and experience to carefully measure and balance a variety of factors:

• Terms of sale
• Market conditions
• Location
• Square footage
• Physical condition
• Additional features

Skipping the appraisal is like throwing these ingredients together without measuring them.

It’s also a risky move to skip the appraisal altogether, as it could cost you thousands of dollars in lost profits or lead to scaring off potential buyers.

But, if you really want to set a list price for your property without going through the hassle of an appraisal, there are a few ways you can get around it:

• Look for similar properties in the area that have recently sold and compare the factors previously mentioned to determine a reasonable price range for your property.
• Find a good real estate agent who can pull a comparative market analysis (CMA) for you.

A CMA is an assessment of the current market value of your property based on recent sales of similar properties in your area. It also includes an analysis of real estate market trends and conditions.

Settling a list price without an appraisal is possible with some research and available expertise, but an appraisal is a more detailed and precise valuation tool for this.

And keep in mind, a lender is going to do their due diligence to ensure their investment is sound and that the buyer is not overpaying for the property.

So, it’s better to appraise your house before selling.

Why wait until the lender gets the appraisal to find out why they won’t lend on the property while you’re hoping to close after doing all of that guesswork and working through all those potential buyers?

What Is the Difference Between Appraisal and Sale Price?

Homes don’t always appraise for the selling price. This is because appraised values and selling prices are different values.

If you’re thinking of buying or selling a property, you should make sure you know the difference between the appraised value and sale price.

An appraisal for a purchase estimates a home’s market value based on factors like the terms of sale, market conditions, location, square footage, and the physical condition, as well as any additional features.

Selling prices, on the other hand, are determined by buyers and sellers. In this case, a house does not have to appraise for the selling price. Buyers and sellers ultimately agree on a price.

For example, a price can be significantly increased if one buyer thinks this is the house of their dream and there are also other competing buyers for the property.

Or, it can be reduced if the seller needs to sell the house fast because of a personal urgency.

However, financial institutions lend based on the appraised value, so they require a formal appraisal report.

A house appraisal may be less than the selling price. Should this be the case, this requires additional funds from the buyer to meet the price point, or the deal may require a price negotiation.

Houses that are appraised over the selling price, on the other hand, give added equity to the buyer.

Ultimately, a sound appraisal will serve as a valuable tool that helps buyers and sellers make informed decisions.

Do Appraisers Try to Match Sale Price?

Appraisals are assessments of a property’s value made by an objective third party. In short, home appraisers aren’t allowed to match the sale price of a property.

An appraiser’s goal is to provide an accurate estimate of a property’s value that complies with the rules and standards of the professional appraisal practice.

Ultimately, it’s up to the buyer and seller to agree on a price. The appraisal is an instrument that is used to provide valuable insights while negotiating on that price.

Do Appraisers Know the Sale Price?

Every appraisal I’ve done for a purchase has included the purchase agreement. In short, appraisers do know the selling price of a property.

By analyzing the terms of the agreement, the appraiser can understand the sale price and use it as a reference point for the appraisal.

This way, the sale price and appraisal value are linked, with the appraisal providing an independent assessment of the market’s support for the sale price or lack thereof.

How Often Do Homes Not Appraise for Sale Price?

A home appraising below the sale price is not an uncommon occurrence. The exact frequency can vary.

I can think of two or three occasions since I started my appraisal company where the sale price could not be supported.

However, it is not unusual for a bank to receive an appraisal for less than the sale price.

If the buyer still wants to make the deal, they will have to come up with additional funds to cover the difference or negotiate with the seller to lower the price.

On the other hand, if the home appraises for more than the sale price, it will give the buyer added equity in the home which strengthens the deal.

How Does Appraisal Affect Selling Price?

When it comes to selling your home, getting an appraisal can be an important step in the process.

An appraisal can provide an accurate and objective assessment of your home’s value, which can help you set a realistic asking price and attract potential buyers.

Can I Sell My House for More than the Appraisal Price?

Selling your home for more than the appraised value is doable. In my experience, this has a lot to do with the location of the home.

But, mortgage brokers will still stick to the opinion of market value when determining the loan amount.

If the sale price surpasses the appraised value, the buyer will be responsible for covering the gap.

Now, there is a thing called bidding wars, and this has a lot to do with effective demand and the available supply in your area.

Over the past year, some of the terms I would often read in purchase agreements included:

• the buyer agrees to pay the difference in the appraised value and the sale price
• the buyer agrees to pay 30% to 40% above the appraised value to secure the sale
• in a few rare instances, the appraised value was disregarded altogether with the sale price finalized by both parties in the purchase contact

Overall, a home appraisal can be a valuable tool for anyone looking to sell their home.

It can help you make informed decisions, set realistic expectations, and, ultimately, get the best possible price for your property.

As to when to get an appraisal, timing is an important consideration when it comes to home appraisal for selling.

It’s best to schedule an appraisal early in the process, so you have time to make any necessary repairs or upgrades before listing your home.

This can also help you avoid any surprises or delays during the sale.

As for the cost of home appraisal for selling, it can vary depending on the location, size, and condition of your home, as well as the appraiser you choose.

However, the cost is usually a few hundred dollars, which can be a small price to pay for the peace of mind and potential financial benefits that come with an accurate appraisal.

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About the Author

Matthew Love is a HUD/FHA approved Certified Residential Appraiser with a demonstrated history of working with lenders, investors, banks, and title companies. Matthew was the first to complete the mentorship program for non-client appraisals in Ohio in 2020.

Matthew’s appraisal company, Prime Meridian Appraisal, has been serving the greater Columbus area for over 14 years, specializing in appraisals for homes, investment & rental property, property tax, and new construction.

Matthew’s goal is to provide the highest level of service while ensuring that his work meets the highest standards of quality in order to ensure that all parties are satisfied.