Buying a home would prove so much easier if appraisals were made just before the homeowner put the dwelling on the market. Then, potential buyers would know exactly what the house is currently worth. Unfortunately, that’s not the way the system works, and the appraisal process starts after the buyer has their offer accepted by the seller. Knowing what the house is worth before making an offer isn’t just a matter of paying more than you should, or having a low offer rejected by the owner. If it turns out you’ve offered more than the eventual appraisal amount, you have a problem. Fortunately, technology allows you to discover the value of a house before you make a formal offer.
TL;DR (Too Long; Didn't Read)
House hunters can utilize online home estimators, research conducted by a real estate agent and a home inspection to determine the value of a home before making an offer on it.
Online Home Estimators
The easiest route in determining an accurate home price is via an online home estimator, such as those offered by major real estate sites such as Zillow or mortgage lenders. Zillow’s “Zestimate” uses a proprietary formula based on the recent sales prices of similar homes, basically an online version of comparable sales, or “comps.” In a hot market, comps are fairly easy to find. In a slow market, or if the house has truly unique features, finding comps is more difficult.
While these home estimators will give you a fairly good idea of the home’s value, they can’t take into account certain factors that will affect the home’s price. Does the house have a state-of-the-art kitchen? Was the interior last painted in the 20th century? Is the HVAC system in good repair, or will vital components need replacing? These conditions, positive and negative, will affect home value.
Real Estate Agent
When you’re searching for a house, a good real estate agent is your new best friend. Your real estate agent should know the right price for the home and can advise you accordingly. The agent knows all the factors affecting house prices, such as market conditions, how long a property has been listed and desirable and less desirable features of the area. If a house has been on the market for several months, that’s a red flag indicating the asking price is too high.
While requesting an appraisal prior to making an offer isn’t usually done, and is expensive even if the homeowner agrees, there’s no reason you can’t ask for a home inspection. Such an inspection, which is part of the contract anyway after an offer is accepted, is not nearly as costly as an appraisal but does not serve the same purpose. An inspection by a licensed home inspector involves going over the property and every element with a fine-tooth comb. These comprehensive reports alert the potential buyer to any serious defects in the home or repairs needed, which can have an effect on the asking price.
What happens if you make an offer on a house and the appraisal comes in beneath that amount? Don’t panic – your real estate contract should include a contingency stating your obligation to purchase the property is subject to the appraisal coming in at either the amount of the purchase price or somewhat above. Should the appraisal come in lower than the agreed upon price, the buyer can opt out of the contract.
- Zillow: How Much is my Home Worth?
- Zillow: How to Determine What a House Is Really Worth
- Realtor: In It to Win It: Land Your Dream Home by Avoiding These 7 Mistakes on Your Offer
- Inspection Certification Associates: Home Inspection Training Inspection Course Demo State Licensing Compare Courses Enroll Classroom Testimonials Report What Does a Home Inspector Do? (+ Free Insider Tips for Home Inspectors)
- Lexis Nexis: Appraisal Contingency Clause (Purchase and Sale Agreement) (TN), LexisNexis(R) Forms FORM 66656-8-108
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.