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Do I need a Pre-Listing Appraisal?




A common question I hear from both homeowners and realtors is “why do I need a pre-listing appraisal?” Most realtors can easily pull a Comparative Market Analysis (CMA) from the MLS and this is a common tool used to determine a property’s list price (and it’s free!). A CMA can be a great resource in some cases, but it doesn’t paint the full picture nor does it consider all the additional data that appraisers must consider when completing an appraisal assignment.

 

Appraisers completing appraisals for loans that will be purchased by Fannie Mae must follow the ANSI Z765 standard for reporting a home’s square footage. This standard does not allow any portion of the home that below grade to be counted in above grade square footage (GLA). This primarily affects split level and bi-level homes. In many cases, the square footage shown in the MLS for these homes is larger than the ANSI compliant square footage, which skews the data reported in the CMA

 

Another area I often come across is that the basement square footage or finished area in the basement is not entered correctly into the MLS. Homes are listed with no basements, but they actually have basements (or vise versa). They are listed with fully finished basements with the photos clearly show an unfinished basement. And similarly, they are listed has having unfinished basements when the photos clearly show finished area in the basement. This is a good example of garbage in equals garbage out because these data errors skew the results shown on the CMA.

 

I often see that the Total Price Per Square Foot (PSF Ttl) and Above Grade Price Per Square Foot (PSF Abv) from the CMA were used to determine the list price for the home. While this is not necessarily wrong, you can see how the determined list price might vary from the appraised value given the square footage requirements and square footage issues previously discussed.

 

Less common, but other incorrect data in the MLS that can affect the results shown in the CMA include the bedroom count and bathroom count. Additionally, some key information is not included in the CMA such as the location, view, lot size/acreage, garage/outbuildings, additional amenities (in-ground pools, owned solar panels, etc.) and the condition of the home.

 

While your home may look almost identical on paper to several of the homes listed on the CMA, there are differences that might result in large adjustments when it comes to the actual value for the appraisal. An appraiser independently verifies the characteristics of the homes used as comps in the appraisal to ensure they are truly the best available comps for a property and that the data is reported in a consistent manner. There is nothing more frustrating, for all parties involved, when the appraisal value comes in below the list price. It is also frustrating when the appraised value comes in below the contract price in cases where the purchase price is over the list price.

 

I recently appraised a condo (for a purchase transaction) and on paper it looked fairly identical to the other condo sales in that complex over the past year. But, when I looked closer I found that this was the only condo in the complex to sell without a garage (all the other sold units had 2 car attached garages) and the only condo that had not received extensive updating. This condo was priced in line with the closed prices of the other units within the condo project, which made sense on paper, but the appraised value came in below the list price as the condo didn’t have a garage and was not updated.

 

Having a pre-listing appraisal gives both the listing agent and the homeowner a look at the actual market value of the home at that point in time and helps set realistic expectations. This value is useful for pricing the home correctly, reducing the days on market and reducing the need for price reductions. Knowing the appraised value is also useful when considering offers over the list price. Do the buyer’s have sufficient cash to cover the gap between the appraised value and the purchase price? While the pre-listing appraisal cannot be used by the buyer to secure the mortgage for the property, it can help facilitate a shorter and smoother selling process for the homeowner.

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