Placing your home up for sale can be an emotional decision. And soon, you'll have to make a lot of choices related to selling your house. One of the basic things you need to know is the true value of your home, and there are two different ways of assessing its value. Trying to decide whether you should get a realtor appraisal or a bank appraisal can get confusing. The truth is, they both serve an important purpose, and you may opt to get both appraisals. Know how they compare to each other, so you are empowered to make an informed decision.
TL;DR (Too Long; Didn't Read)
A realtor focuses on a potential selling price, while a bank assesses the current value of the house. Nevertheless, both appraisals should reach similar conclusions when performed in the same general time frame.
Bank Appraisal vs Market Value
An appraiser should be working independently and not have a goal of reaching any specific conclusion for the home buyer, realtor or the bank. Their opinion needs to be neutral to reveal the appraised value of the home. The bank appraisal vs. market value is evaluated after the appraisals. Professional, licensed appraisers are not pressured by any outside influences to arrive at a particular assessment.
Keep in mind that the market value of a home may change dramatically after an appraised value has been established, and an appraisal can also be done after the market value is established. That new appraisal may find the home worth more or less than the market value. For example, if a house is listed for $1 million and ends up selling for $100,000 less than it was originally appraised and listed as being worth, the new market value of the home would become $900,000 even if the appraised value of the home had previously been $1 million. Nevertheless, still a later appraisal could determine the home is worth well over $1 million.
The Process of Bank Appraisals
The bank needs an appraisal to determine how financing will proceed. After all, your bank is becoming a co-investor in your property, and thus have a vested interest in establishing the actual value of the house. The value from the bank’s appraisal determines the amount of financing offered by the lender.
The appraisal is typically done early in the loan-approval process. After you go to a bank or other lender to obtain financing for a home, the lender will require a professional home appraisal. They aren’t likely to settle for a realtor’s appraisal or market-value estimates. The appraiser needs to a be a state-certified and licensed professional, and the lender must approve the appraiser. In some cases, the lender will make recommendations for a particular appraiser.
The appraisal can be higher or lower than the previously established market value since the appraiser looks at the current condition of the home and considers a variety of factors, such as any recent improvements to the home, any damage that needs repair and the surrounding area and neighborhood. The appraiser also looks at features of your home, such as overall square footage and the sizes of individual rooms.
It’s not all about your home, though. The appraiser may give a lower value if there is a pervasive bad smell in the area because the home is close to a paper factory or a dirty body of water. The appraiser also enlists the help of many tools to compare your home to similar houses on the market in the area. Prior appraisal data may be considered along with records of past sales on the Multiple Listing Service or MLS.
The appraiser for the bank will prepare a long-form report on the value of your house. It will list the factors that contributed to his evaluation and it will also include a summary explaining the reasons for the appraised value. The bank relies on this appraisal to ensure your home is worth the money you are borrowing because if you default on your loan, they will take possession and sell the house. And, of course, lenders do not want to lose any money on the transaction.
The Process of Realtor Appraisals
As a real estate agent who belongs to the National Association of Realtors, the biggest trade group in the U.S., a realtor is held to a higher ethical standard than other real estate agents who are not affiliated with this organization. When you hire a realtor to sell your house, they will likely have a basic appraisal done to help you figure out what your listing price should be. The physical inspection of the property may take under an hour or can last for several hours.
The realtor appraisal compares your property to similar homes in the area. It also looks at the special features of your home, the current overall condition of your home and whether any parts of the house need improvements or the addition of any amenities, among other things.
The realtor appraisal is part of the real estate agent’s services to you. It’s a way to help you set a reasonable price for your home that can help ensure it sells promptly for a fair price. If you price the home too low, you may sell it quickly but leave a great deal of money on the table. If you price the house too high, it can stay on the market indefinitely and ultimately hurt the perceived value of your home. The realtor appraisal needs to be as accurate as possible so that you don’t set the price too low or too high. Some home buyers and home sellers alike choose to get independent appraisals separate from the realtor and bank appraisals.
The realtor appraisal is part of the home-selling process and completely independent of the lender's appraisal. Your bank will require its own appraisal even if your realtor has recently completed theirs. Even though similar features of the home and surrounding area may go into both the realtor appraisal and the bank appraisal, they are both essential for many home-selling situations.
Utilizing Both Appraisals
Both the realtor appraisal and the bank appraisal are useful tools for the prospective home buyer. When looking at the bank appraisal vs real estate appraisal, there is a distinct difference between the purpose of each. The realtor’s appraised value of your home helps you get a market value so that you can price your home accurately before putting it up for sale, while a bank appraisal is used when buying or refinancing a home. Consequently, you may be getting a realtor appraisal on the home you’re selling at the same time as you’re getting a bank appraisal on the home you want to buy.
Robin Raven is an experienced journalist and author. She has a BFA in writing from the School of Visual Arts and loves to write about personal finance. She has contributed to USAToday.com, The Huffington Post, The Nest, Grok Nation, and many other publications.